OSCPA responds to FASB/IASB’s preliminary views on leases

In a comment letter, the OSCPA Accounting & Auditing Committee responded to the a joint discussion paper from FASB and the International Accounting Standards Board (IASB) on lease accounting.

The discussion paper, “Leases: Preliminary Views,” addresses concerns regarding the treatment of lease contracts under International Financial Reporting Standards (IFRSs) and GAAP.

Particular problems encountered include:

• Many users of financial statements believe that all lease contracts give rise to assets and liabilities that should be recognized in the financial statements of lessees
• The split between finance leases and operating leases can result in similar transactions being accounted for very differently, reducing comparability for users of financial statements
  

FASB and the IASB propose a possible new approach to lease accounting: lease accounting should be based on the principle that all leases give rise to liabilities for future rental payments and assets (the right to use the leased asset) that should be recognized in an entity’s statement of financial position.

In the comment letter, OSCPA offered general agreement the proposed approach in the paper, but addressed several exceptions. “While there are deficiencies with the current standard; it is our opinion that there are more provisions that work than do not,” the letter read. “The main problem with the current standard lies in the fact that ‘loop holes’ are exploited. Attempts should be made to tighten the exceptions rather than ‘blowing the whole standard up’ and starting again.”

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