After three years of outreach and deliberation, the IASB and FASB recently issued a revised proposal to overhaul the rules on accounting for leases, a move that could significantly boost US companies' reported debt.
Current rules allow companies to classify leases as capital leases (on-balance sheet) or operating leases (off-balance sheet). The Boards' new proposal requires lessees to record an asset and liability for most leases similar to today’s capital leases. A dual model has been proposed that will impact income statement presentation for lessee’s and lessor’s, depending on the consumption of the underlying asset during the lease term.
While the rules aren't final and further debate is expected, companies should start preparing now to understand the impact of proposed changes on your company’s financial statements.
Related thought leadership: