VideoTim Reason, CFO Magazine
September 1, 2008
- Leases: first get the facts right
Contrary to Sir Tweedie's assertion, as well established by credible surveys and knowledgeable legal and accounting experts, most equipment leases are currently reported by lessees on balance sheet. In the U.S., the majority of such leases constitute leases intended as security and are accounted for in essentially the same way as loan financing. Similarly, due to legal and economic considerations, most leases originated in non-U.S. jurisdictions are the functional equivalent of loans and are accounted for as such under IFRS. Sir Tweedie first needs to get the facts right and see the trees from the forest before lecturing the business community and potentially doing harm to an important source of capital raising and job creation for small and mid-sized businesses. Anecdotes form no basis for sweeping generalizations and the imposition of "one-size-fits-all" accounting.
Posted by Rodney Hurd | Sep 8, 2008 2:27 PM ET
- the facts re lease accounting
The real problem is real estate leases. Over half of the equipment lease volume quoted by Sir David is on BS as they are capital leases under the current rules. It is right to capitalize lease obligations but watch out for what they propose for the P&L treatment. They want SL depreciation and interest expense front ending lease costs and creating book tax differences. The lease asset and liability are linked yet the BS values will be out of sync. They are rushing the project without analysis and debate. Operating leases and finance leases are not the same economically (the IRS and UCC recognize the difference)yet the new rules will not recognize the differences hence the burbensome and illogical P&L and deferred tax accounting. The hit to P&L will be large for any company that has long term operating leases like real estate and transportation equipment. Retailers and banks will be hit hard. Financial institutions will take capital hits to match capital vs the new capitalized lease assets and to offset the P&L hit. Applying the proposed new approach to lease accounting based on 2007 results, BofA would have inceased PT expenses of $371 million and increased capital needs of about $1 billion for the $11+ billion in new leases assets. Can you imagine they will be depreciating the capitalized lease assets of all their branches and imputing interest expense. The simple answer is capitalize operating leases but retain SL expense recognition to reflect the economics of a contract that conveys a temporary right to use an asset but does not convey ownership rights. This approach would keep the fair value of the lease asset and liability equal which is also economic reality absent impairment.
Posted by bill bosco | Sep 8, 2008 12:37 PM ET
- Obtaining IFRS
You are Right Stephanie, I think IFRSs should be free form IASB; anyway your students can obtain the standars from EU website for free. European standars are almost the same than IASB's, so they may be enough for them.
Posted by Antonio Olleros | Sep 8, 2008 8:46 AM ET
- Freedom of information
I am currently employed in training graduates and qualified accountants from several countries in IFRS and (for the time being at least) US GAAP. I applaud the FASB in making freely available on its website the full texts of all the US GAAP standards. I would like to ask Mr.Tweedie when the IASB is going to do the same. Currently, to get more than a half-page summary, my (revenueless) students have to buy expensive textbooks or pay ?200 per year for internet-based information on updates.
Posted by Stephanie Campion | Sep 6, 2008 4:07 PM ET
