In February, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) shed additional light on their proposed rule that changes how lease agreements are treated for accounting purposes. The proposed rule, originally published in an exposure draft on August 17, 2010, treated all lease agreements as capital lease agreements for accounting purposes. The proposed rule was originally met with criticism by most in the accounting and real estate industries.
After receiving an overwhelming amount of comments questioning the proposed rule, FASB and IASB reconsidered some of the more controversial sections of the proposed rule. In February, FASB and IASB announced that they would consider a two-model approach for accounting leases: finance leases and “other-than-finance” leases which more closely mirrored the current practice of accountants when considering capital lease agreements as distinct from operating lease agreements.
However, in May, FASB and IASB issued a decision on the revision, rejecting the two-model approach in favor of the single model approach originally proposed in August 2010. Under that model, all lease agreements are treated as capital lease agreements for accounting purposes. The rule is not final yet, however FASB and IASB intend to finalize the rule in the Fourth Quarter of 2011 after exposing it to a final round of public comment. For more information, click here.
Andrew Dick is an attorney in the Indianapolis-Downtown office of Hall Render. Andrew concentrates his practice on real estate and environmental law. He can be reached at (317) 977-1491 or by email at adick@wp.hallrender.com
