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FASB, IASB Issue Tentative Guidance on Leases

Although lease accounting revisions are still up in the air

The International Accounting Standards Board and the Financial Accounting Standards Board released a joint proposal to revise lease accounting rules in August 2010, which they said would provide improved financial reporting information to investors. However, those revisions are still being negotiated almost a year later, and at times have had an "uneven character," reversing previous decisions to record "other-than-finance" leases' interest expenses as a straight line on the lessees' income reports, according to CFOWorld.

Under tentative decisions reached by the boards at a July 13 meeting, lessees should follow a single accounting approach - the one proposed in the Leases Exposure Draft - for all leases. To do so, a lessee would have to "initially recognize a liability to make lease payments and a right-of-use asset," then use the effective interest method to measure the liability to make lease payments. Finally, the lessee would demonstrate the expected future economic benefits' consumption pattern by "amortiz(ing) the right-of-use asset on a systematic basis."

The back-and-forth sparked questions within the industry about when FASB will issue its final proposal - the board is aiming for the end of 2011, but it could be longer, CFOWorld reports. To be ready to calculate when the final ruling does come down the pipeline, CFOs should start pulling together lease terms and rates now, the source advises.