April 2, 2012
On Wednesday, March 28, 2012, the U.S. House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises held a hearing on “Accounting and Auditing Oversight: Pending Proposals and Emerging Issues Confronting Regulators, Standard Setters and the Economy.” While the hearing was primarily focused on mandatory rotation or “term limits” for audit firms, Rep. Schweikert (R-AZ) raised several questions and concerns regarding the unintended negative economic impact of the Financial Accounting Standards Board’s (FASB) lease accounting proposal. Under this proposal, all real estate tenants would be required to capitalize the costs of their lease – similar to as if they purchased the property with financing – instead of recognizing the true costs of the lease transaction. Among other things, this proposal may jeopardize income property fundamentals, loan structures, property valuations, financing covenants, and the underlying economics of commercial real estate.
The FASB Chairman, Leslie Seidman, acknowledged some concerns amongst the business community with the current lease proposal. Furthermore, she told the Subcommittee that the FASB is still working through comments letters and plans to “re-expose” or reintroduce their lease proposal, but did not give a specific timeline.
Watch the Hearing