CG Commercial Finance (CGCF) and Leasing 101’s Bill Bosco released their update on the GAAP/IFRS convergence project. CGCF is providing this summary to its clients to assist them to better understand the status of the project and how it may affect their business. The content is the result of continuing collaboration between CGCF and Bosco.
1. What is the update on the convergence project timeline?
Ans: As of 9/25/2014 the IASB and FASB Boards have begun final re-deliberation of the issues. Four meetings have taken place with several more to be held over the next few months. They are now making decisions quickly with many designed to reduce complexity and cost of compliance. The Boards plan on issuing the new standard in mid-2015. The implementation date is to be decided in these upcoming deliberations but is unlikely to be sooner than 2018.
2. I hear the FASB and IASB have disagreed on several key issues – what are they?
Ans: Ans.: Correct, currently they disagree on the following:
A. Lessee lease classification and lessee cost accounting for operating leases.
B. When a lessee should re-book a lease for changes in variable payments based on a rate or index
C. The need for relief on small ticket leases
The lack of agreement between the two Boards on the above items are significant enough to conclude that the project’s stated goal and purpose of the accounting convergence project on lease accounting between GAAP and IFRS will not be accomplished. Although they will continue to work together, it is very likely they will issue separate but “partially converged” lease accounting standards.
3. Is the disagreement on lessee accounting significant?
Ans.: Yes, the disagreement between the IASB and FASB on lessee accounting is huge:
A. IASB wants lessees to account for all leases as though they are capital leases.
B. FASB believes all leases should be on lessee’s balance sheet but operating leases should be reported differently from capital leases on the Balance Sheet and Income Statement —
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CG Commercial Finance is a domestic and international financier of equipment and industrial projects related to the growth, expansion and efficiency initiatives of large corporations.
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