Thursday, May 16, 2013

Revised Exposure Draft released

At long last, the Revised Exposure Draft (RED) for the proposed new lease accounting standard has been released by the IASB and FASB. A press release is available here; the actual RED is available from either the IASB or FASB.

The public comment period lasts until Sep. 13, 2013. Comments may be submitted here or by email to; email submissions should include File Reference No. 2013-270. (You can also submit comments via the IASB web site if you're a registered user; it all goes into a single compilation.) There are 12 specific questions that the boards are asking for responses to. The FASB online response form is structured with boxes to respond to each question (plus a box for any other issues that someone may want to comment on).

The boards will have public webcasts to discuss the RED on May 20. The IASB will hold one at 8:30 BST (British Summer Time, GMT +1); registration is available here. A joint FASB/IASB webcast will be held at a more reasonable hour for Americans, 10:30 AM EDT; registration is available here.

One interesting thing that jumps out is that FASB has assigned a new topic number in the Accounting Standards Classification. Leases currently is Topic 840. The new proposed standard is Topic 842. The use of a new number may reflect the fact that the two of them will be active simultaneously. There's no indication from the IASB whether they will keep IAS 17 as the standard number for Leases.While the boards say that the texts are almost identical, with the differences "primarily related to existing differences between U.S. GAAP and IFRS and decisions the FASB made related to nonpublic entities" (quoting from the press release), they're formatted quite differently, as the FASB has structured the RED to fit the format of the ASC, with four multidigit numbers separated by dashes defining the hierarchical structure (it starts at 842-10-05-1), and various changes to related current standards are shown with strikeouts of existing text and underlined new text. Frankly, the IASB version is far easier to read; I haven't liked the ASC ever since it came out, because the structure makes everything so choppy (especially if you don't have a paid subscription to the online ASC).

Another item that immediately jumps out is that the boards haven't been able to come up with a good name for the different types of leases: A "Type A" lease uses the current capital/finance lease accounting methodology, while a "Type B" lease uses the straight-line expense methodology. Couldn't they use slightly more descriptive titles? I suppose over time we'll get accustomed to them, but do we really need more monikers that have no inherent meaning? Some people have been referring to the two types as I&A (interest and amortization) and SLE (single lease expense), which focuses on the most noticeable difference between the two types; I think something like that would be far less confusing.

While the pieces of the proposal have been discussed here in numerous prior posts, we'll take some time in coming weeks to look at the RED systematically.

Let the comments begin!

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