Comment letters coming in

The lease accounting exposure draft has already received 45 comment letters, with almost a month to go until the deadline (Dec. 15). By comparison, the March 2009 discussion paper had received just 5 comment letters a month before its deadline. Since the DP got 302 responses, one can fairly expect a considerably larger number of responses to the ED. I don't know an easy way to compare with responses to other EDs, but I think it's fair to guess that this will be one of the more heavily commented on.

All or almost all letters from companies that will need to comply, and many of those from independent accountants, disagree with the proposal to capitalize renewal options and contingent rentals (unless the contingent rentals are disguised minimum lease payments). They make three basic arguments: options that haven't been exercised don't meet the conceptual definition of a liability, the estimates will be highly subjective guesswork, and the burden of complying will be onerous (for questionable benefit).

Some companies argue for keeping operating lease accounting, saying that it better matches expenses to benefits (capitalization results in more expense in the early years of a lease, less at the end, due to the interest method of amortizing the liability).

A number of lessors (and some users of statements) dislike the performance obligation approach, because it is asymmetrical with lessee accounting, it double-counts assets (though the ED calls for the final presentation in the financial statements to be net), and they're concerned that the dividing line between performance obligation and derecognition will be arbitrary. Most would prefer derecognition for all lessor leases, except for short-term leases. I haven't seen any deal with the issue of a re-leased asset that has been fully derecognized.

Will the boards bend to the complaints?

It's not too late for you to add your own voice. Anyone is welcome to submit a letter (see details on how in my earlier post). Current letters include official national bodies, companies from all over the world, individual accountants, accounting students, and a few random people seemingly just speaking for themselves. We'll submit a letter in the next couple of weeks.