NEWS RELEASE 08/17/10
IASB and US FASB Publish Proposals to Improve the Financial Reporting of
Leases
Norwalk, CT, August 17, 2010—The International
Accounting Standards Board (IASB) and the US Financial Accounting Standards
Board (FASB) today published for public comment joint proposals to improve the
financial reporting of lease contracts. The proposals are one of the main
projects included in the boards’ Memorandum of Understanding. The proposals, if
adopted, will greatly improve the financial reporting information available to
investors about the financial effects of lease contracts.
The accounting
under existing requirements depends on the classification of a lease.
Classification as an operating lease results in the lessee not recording any
assets or liabilities in the statement of financial position (balance sheet)
under either International Financial Reporting Standards or US standards
(generally accepted accounting principles). This results in many investors
having to adjust the financial statements (using disclosures and other available
information) to estimate the effects of lessees’ operating leases for the
purpose of investment analysis.
The proposals would result in a
consistent approach to lease accounting for both lessees and lessors—a
‘right-of-use’ approach. Among other changes, this approach would result in the
liability for payments arising under the lease contract and the right to use the
underlying asset being included in the lessee’s statement of financial position,
thus providing more complete and useful information to investors and other users
of financial statements.
The boards developed the proposals after
considering responses to their discussion paper, Leases: Preliminary Views,
published in March 2009. In developing the proposals, the boards also considered
extensive input from constituents, including more than 300 comment letters. The
proposals are set out in the exposure draft Leases, which is open for comment
until 15 December 2010 and can be accessed via the ‘Comment on a Proposal’
section of www.ifrs.org or
on www.fasb.org. During the
exposure draft’s comment period the boards will undertake further outreach
activities, including public round-table meetings, to ensure that the views of
all interested parties are taken into consideration before the new standard is
completed.
Commenting on the exposure draft, Sir David Tweedie, chairman
of the IASB, said:
The leasing industry plays an important role in
many economies by helping companies manage cash flow and working capital.
However, much of the estimated annual $640 billion of lease commitments fails to
appear on the balance sheet of lessees, thereby giving a false impression of
companies’ liabilities and gearing.
Our proposals would result in better
and more complete financial reporting information about lease contracts being
available to investors and others.
Bob Herz, chairman of the FASB,
said:
This proposal continues the progress both boards
are making to improve and converge our standards in significant areas of
accounting. The proposal is intended to improve the transparency of lease
accounting and also decrease its current complexity. I encourage all
constituents that engage in leasing transactions to provide us with your views
on this important proposal.
As part of their additional outreach, the
boards are seeking entities that would be willing to take part, on a
confidential basis, in field work to discuss and test the provisions of their
proposals for lease accounting. The purpose of the field work is to assess the
operationality and the costs and benefits of the proposed new standard. This
exercise will be conducted during the exposure draft’s comment period. Entities
interested in volunteering should contact Aida Vatrenjak at avatrenjak@ifrs.org
or Danielle Helmus at dehelmus@fasb.org
by 15 September 2010.
To find out more, visit the Leases section of the
IASB website via http://go.ifrs.org/leases.
and the FASB website via www.fasb.org.
Materials available on the website include a podcast introduction to the
proposals as well as a high level summary of the proposals.
The IASB will
hold an interactive webcast introducing the proposed standard at 10:30am London
time on 18 August, and repeated at 3:30pm London time on the same day for the
benefit of interested parties in different time zones.
To register,
please visit the IASB
website.
END
Press
enquiries:
Mark Byatt, Director of Communications, IFRS
Foundation
Telephone: +44 (0)20 7246 6472, email: mbyatt@ifrs.org
Neal
McGarity, Director of Communications, FASB,
Telephone : US 203-956-5347,
email: nemcgarity@f-a-f.org
Notes
for editors
About the IASB
The
IASB was established in 2001 and is the standard-setting body of the IFRS
Foundation, an independent private sector, not-for-profit organisation. The IASB
is committed to developing, in the public interest, a single set of high
quality, global accounting standards that provide high quality transparent and
comparable information in general purpose financial statements. In pursuit of
this objective the IASB conducts extensive public consultations and seeks the
co-operation of international and national bodies around the world. The IASB
currently has 14 full-time members drawn from ten countries and with a variety
of professional backgrounds. By 2012 the IASB will be expanded to 16 members.
IASB members are appointed by and accountable to the Trustees of the IFRS
Foundation, who are required to select the best available combination of
technical expertise and diversity of international business and market
experience. In their work the Trustees are accountable to a Monitoring Board of
public authorities.
About the FASB
Since
1973, the Financial Accounting Standards Board has been the designated
organization in the private sector for establishing standards of financial
accounting and reporting. Those standards govern the preparation of financial
reports and are officially recognized as authoritative by the Securities and
Exchange Commission and the American Institute of Certified Public Accountants.
Such standards are essential to the efficient functioning of the economy because
investors, creditors, auditors, and others rely on credible, transparent, and
comparable financial information. For more information about the FASB, visit our
website at www.fasb.org.