Get Ready for Lease Accounting Changes

Accounting for lease liabilities is expected to get more complicated.

The U.S. Financial Accounting Standards Board and the International Accounting Standards Board, as part of their ongoing convergence efforts with the International

The U.S. Financial Accounting Standards Board and the International Accounting Standards Board, as part of their ongoing convergence efforts with the International Financial Reporting Standards (IFRS), recently announced a change to lease accounting standards.

David Legge, a financial institutions principal with LarsonAllen, outlined some of the expected effects the lease accounting changes will have for companies in the United States. One of the biggest differences will be how property and equipment and their associated liabilities are reported in financial statements.

Rather than just being explained in a footnote, lease payment and rental disclosures will be added to financial statements, meaning there will be more total assets and total liabilities, he explains.

"Planning is always better completed in an anticipated mode than in a reactionary environment; therefore, you should strongly consider analyzing now how this accounting change might impact your organization in the future," Legge said.

A June 2011 post to the LexisNexis Tax Center noted that the current volume of U.S. lease transactions is more than $1 trillion and that many of the liabilities associated with these leases were not recorded on company balance sheets. The authors, Barbara Apostolou, Nicholas Apostolou and Jack W. Dorminey, also warned companies to get started on insulating their business processes, debt structuring, financial metrics and other factors now, even if the final standard does not go into effect until 2014.