More comment letters and other discussion

Comment letters on the proposed new lease accounting standard continue to come in to the boards. Tomorrow (Dec. 15) is the official deadline to submit a comment (though for the preliminary views document, they did continue to accept and post letters received later). Surprisingly, only a handful of letters have been posted since late last week. I have to think that reflects delays, not actual numbers of letters. As I write this, the count of letters posted is 114.

Few if any of the letters agree completely with the boards, and many vehemently oppose some or many of the provisions, on conceptual grounds (such as arguing that unexercised options are not liabilities), on practical grounds (complying will be burdensome for little perceived benefit), and for their implications (loan covenants will be breached, cost recovery contracts that are based on operating leases will be invalidated, etc.). Several are calling for delaying release until the standard can be thoroughly reviewed and reworked, particularly on the lessor side; others are calling for a lengthy implementation period (up to 5 years).

There are so many different objections it'll be a major task for the boards' staff to organize them, not to mention for the boards to consider them. A number of complaints refer to the impact on very specific situations of individual industries ("wet" vs. "dry" leases of planes and ships, for instance, meaning leases that do or don't include personnel to operate the vehicle). Many complain that the proposed standard will harm their business model; numerous letters suggest that the current economic downturn will be further extended because of it.

Asset Finance International reports that at a Nov. 5 meeting in London between lessors and members of the IASB, an IASB member stated that the boards weren't open to reconsidering the capitalization of lessee leases, but that they were willing to reconsider how to measure the asset, including the question of options and contingent rents.

The boards have indicated that they will consider carefully comments and suggestions made at the roundtable discussions scheduled for both in London & Hong Kong later this month and early January in the U.S. I will be participating in the afternoon session on Jan. 6, 2011, in Norwalk, CT (the FASB's headquarters).