FASB Seeks Cut in Lease-Accounting Costs

By David Katz for CFO.com

Driven by feedback from corporate executives that complying with the Financial Accounting Standards Board’s new lease-accounting standard will cost their companies substantially more than they previously thought, FASB is proposing what it thinks is a cheaper compliance option.

Instead of companies having to apply the requirements of the standard to their 2017, 2018, and 2019 balance sheets, FASB proposed last week that companies should have the choice to report “the cumulative effect” of the changeover in just their 2019 financials.

The idea is that trimming the paperwork and analysis could cut compliance costs like those incurred in acquiring software, upgrading corporate lessees’ lease-accounting systems, and signing on consultants and accountants.

As companies have started to comply with the new lease rules, “many preparers have cited their plan to implement new systems and are observing some unanticipated costs and complexities,” according to the proposal. Executives have had a particularly tough time with the need to provide detailed comparisons for all three years, according to FASB.

Currently, companies will have to make the transition to the new lease-accounting rules by first applying the requirement at the start of the earliest period presented in their financials. That would be January 1, 2017, for calendar-year-end companies that adopt the new lease requirements on January 1, 2019.

That means that lessees must report lease assets and liabilities on  their balance sheets for all leases over the three years, as well as providing the new disclosures required by the standard. (Companies typically provide two prior years of financials for comparative purposes when they file their 10-Ks.)

Because of the unanticipated costs their companies were experiencing, corporate lessees asked FASB to provide an added and optional transition method. Under the proposed accounting standards update, companies could apply a “cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption,” which starts January 1, 2019. Comments on the proposal are due February 5, 2018.