Lease Accounting: Boards’ Split Could Be Fatal To Project, Warn Lessors

International Decision Systems (IDS) and Asset Finance International’s latest interviews on the lease accounting proposals released today, feature interviews with Rod Hurd and Mark Venus, the chairs of the accounting committees for ELFA and Leaseurope. In the interviews Hurd and Venus question whether disagreements among Board members of the joint standards bodies – the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB)- could derail the whole project.


Interview one – Patrina Buchanan, Technical Lead, International Accounting Standards Board

Interview two – Mark Venus, Chair of Leaseurope’s Accounting and Taxation Committee

Interview three – Rod Hurd, Chair of ELFA’s Financial Accounting Committee


In April this year, shortly before the draft was issued, FASB voted to approve it only by a four to three majority of its seven members. One of the majority was its then chairman Leslie Seidman, whose term of office ended on June 30 this year.

Seidman was replaced as chairman by an existing Board member Russ Golden. He had also voted in favour of the draft, but Seidman’s departure from the Board leaves an even split in terms of the April vote. It has now been announced that the replacement member of the Board, filling a new position of vice-chairman, is James Kroeker, formerly chief accountant of the Securities and Exchange Commission (SEC). He will enter the re-deliberation process on the leasing standard with no prior commitment after the comment period ends in September.

None of the standard setters has opposed the draft’s core principle of putting all extended term leases on to the lessee’s balance sheet. Indeed the three dissenting FASB members have all in varying ways put forward as their first preferences alternative versions that would tend to be more onerous for lessees than the main proposal. However, they have all suggested that the joint Boards’ proposal as it stands would not be an improvement on the existing standards where operating leases remain off-balance-sheet.

Mark Venus, project director at BNP Paribas and chair of Leaseurope’s Accounting and Taxation Committee, said: “FASB approved the joint draft only by a whisker. The project was always meant to be part of the process to converge international financial reporting standards (IFRS) and US GAAP. Much will depend on the feedback in the comment process; but I would be surprised if the IASB went ahead with changes to their IAS 17 standard if in the end FASB could not agree.”

Rodney Hurd, chief financial officer of Bridgeway Capital Advisors Inc and chair of the Financial Accounting Committee of the US Equipment Leasing and Finance Association (ELFA), suggested that FASB members’ divided views on the current draft reflected underlying differences of view between the Boards. He said: “There has been a clear philosophical difference between the two Boards, on the question of accounting for expense in the income statement. The present proposal is a compromise between IASB, who felt that all leases should be subject to front loaded expense like capital leases now, and FASB who feel that operating lease contracts should not be accounted for like that.”

“Convergence is still the goal, and FASB will try to find a way to reach agreement with IASB. Yet if the two Boards cannot agree, and FASB feels that the IASB’s preference would adversely affect economic activity, it is possible that FASB could go its own way.”