Leasing back on FASB's agenda; ED likely in '09.

• Author: Heffes, Ellen M.
• Position: Financial Accounting Standards Board

Lease accounting was on the original agenda for FASB when the board was first launched in 1973. In 1976, FAS 13 was issued, and leasing remained a contentious issue through the '70s and beyond. Now, in 2006, it's back, and Financial Executive Executive Editor Ellen M. Heffes spoke recently with Leslie F. Seidman, a Financial Accounting Standards Board member, about why leasing is back on FASB's agenda--more than 30 years later--and what to expect.

The obvious question: why is leasing back on FASB's agenda?

Seidman: Part of our mission at FASB is to re-visit existing accounting standards when we get information that indicates that they are not producing decision-useful information. In recent years, investors and other users of financial statements have indicated to the board that the current lease accounting standards can produce information that's not decision-useful.

For example, the accounting for operating leases can omit significant assets and liabilities from the books of the lessee. This was specifically mentioned by the Securities and Exchange Commission (SEC) in their report on off-balance-sheet accounting, and it's also been present in the items that our advisory council (FASAC, or Financial Accounting Standards Advisory Council) has indicated as one of the top five priorities for the board to take on to its agenda when available resources existed.

There has also been an increasing call for simplification of accounting standards and, to the extent possible, a move toward principles-based accounting standards, and leasing is a very complicated area of the current accounting literature. First, you'd have a lot of numerical tests in the existing lease accounting model, and also there are numerous interpretations. So, it's somewhat unwieldy for practitioners to work with. Thus, in addition to an opportunity to improve the accounting model, we have an opportunity to simplify.

What are some of the main issues that make the lease accounting standards so challenging?

Seidman: First, there are a wide variety of arrangements currently. There are leases that apply to a photocopier, and there are leases that apply to an aircraft. So, depending on the nature of the item being leased, the terms of the arrangement, the tax implications of them, etc., you can be dealing with some pretty complicated arrangements.

The other thing that makes it challenging is that the existing accounting literature is very detailed. We have over 20 interpretations of...