Accounting For Leases in The United States - Lease Accounting Rule Changes - Present Vs. New Lease Accounting Standards

Present Vs. New Lease Accounting Standards

The proposed lease accounting rules eliminate the FAS 13 test which classifies leases as operating leases or capital leases. Unlike current lease accounting standards, all leases will be accounted for as assets and liabilities on the balance sheet – on the asset side as ‘right-to-use-assets’ and on the liability side as lease liabilities.

While the first Exposure Draft envisioned including likely rent (contingent rents and options to renew) in addition to minimum required rent payments, subsequent decisions by the boards have reversed these plans, making the proposed accounting for lessees similar to that of existing capital leases. Lessor accounting will be similar to current direct finance lease accounting, though with the potential for recognizing a profit at the beginning of the lease term in certain circumstances. Leases with a maximum term of 12 months or less would be treated in accordance with current operating lease rules.