Ernst and Young Predicts FASBs New Leasing Standards

E&Y on Leasing Changes

The U.S. Financial Accounting Standards Board and the International Accounting Standards Board are fairly close to convergence on leasing standards (the sticking point appears to be income statement-related) and expect to have an exposure draft on leases by the end of June with the goal of publishing joint standards sometime during the middle of next year. To help clients prepare, Ernst and Young discussed the impact of the new standards on businesses. Among the key points: be aware that almost all businesses have at least some leases; be extra aware of the changes if your business functions as both leasee and leasor, be alert for debt/equity ratio changes and do not treat these changes as only affecting accounting and finance.

Having taught Intermediate Financial Accounting on a number of occasions, I can safely say that lease accounting is one of the most complex topics in accounting. Hopefully (I know, don't hold my breath), the final standards will bring clarity and consistency between leasor treatment and leasee treatment as well as capital vs. operating lease.