Congress Raises Concern About Lease Accounting Proposal
On May 17, 2012, Reps. Sherman (D-CA) and Campbell (R-CA) sent a bipartisan letter signed by 58 other lawmakers to the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB), urging the accounting standard setters to conduct a comprehensive economic analysis of its recent lease accounting proposal before making a final rule.
Under the proposal, U.S. companies that lease commercial space would be required to capitalize the costs of that lease — similar to as if they purchased the property — instead of recognizing the true costs of the lease transaction. It is estimated that under current terms, businesses would be required to capitalize over $1.1 trillion in leased real estate assets onto their balance sheets. For businesses leasing space, especially small businesses, this will change these leases into a major liability.
FASB and IASB will likely be ready to vote on a method to account for real estate leases in June 2012, along with expectations of finalizing their lease accounting overhaul by the end of this year.