Alert

In a departure from our typical "Smart Word" emails, we wanted to alert you to a potentially significant change in lease accounting standards. Following are the key points and some helpful links.

The FASB (U.S. accounting standards body) is working on a significant change in lease accounting standards.

The Financial Accounting Standards Board (FASB) issued a discussion paper earlier this year soliciting comments from accounting practitioners on a new accounting model for leases. Under the new rules all leases will be treated essentially as current capital leases, meaning lease payments are to be recorded as both an asset and a liability on the company’s balance sheet.

In a significant departure from FAS 13, lessees must assess the impact on the lease term of options to renew, return, or purchase the leased asset. These determinations will require a significant amount of accurate, timely and complete lease information. Many companies may find their current lease data, information systems, and in-house real estate expertise are deficient in this regard.

Links