Bill Bosco, lease accounting expert and president of Leasing 101, wrote that FASB on April 10 tentatively decided to move forward with issuing an exposure draft on lease accounting next month despite concerns about the financial reporting complexity that may result from the proposed model.

Bosco noted that at a meeting in Norwalk, CN, FASB chair Leslie Seidman said the board launched its leases project with a strong mandate from investors to improve the transparency of the material rights and obligations for leases that currently are not reported on the balance sheet.

Seidman added that while FASB members have not yet reached agreement on how to carry out the improvement, the board should gather input from its constituents on the proposed guidance that was developed with the International Accounting Standards Board during re-deliberations of the leases project, according to Bosco.

In June 2012, FASB and the IASB revised the proposed requirements from the 2010 exposure draft “Leases” regarding how a lessee should recognize a lease expense. The boards agreed to pursue a dual model that would allow some leases to be accounted for under the approach in the exposure draft and other leases to be accounted for with an approach that results in straight-line expense recognition over the lease term(Prior coverage (Doc 2012-12835)), Bosco explained.

Seidman said that intense fieldwork will be conducted during the 120-day comment period for the leasing proposal. She added that stakeholders should review the changes made to the previous exposure draft that involve the scope of the proposed leases guidance and the dividing line for determining when each approach for recognizing lease expense in the income statement should be applied, Bosco said.

“We have worked tirelessly with the IASB on this proposal, and we are going out with a converged proposal, which I think is a significant accomplishment,” Seidman said.

FASB member Thomas Linsmeier was one of three board members who dissented on whether to issue proposed guidance based on the tentative decisions reached on lease accounting, saying that the proposal introduces significant complexity to the reporting of leases. According to Linsmeier, the proposal won’t serve the needs of financial statement users because it doesn’t provide sufficient guidance that instructs preparers on how to bring together the lease information that is spread throughout the financial statements, Bosco reported.

The dissenting board members announced their intention to provide alternative views to the proposed standard in May. FASB member Harold Schroeder said his alternative view will recommend requiring a footnote disclosure that provides information on the differing economics of lease transactions accounted for under the dual-model approach, Bosco said.

John Gillard, a postgraduate technical assistant at FASB, presented the board with a staff analysis that addressed the complexity inherent in lease transactions and in current U.S. generally accepted accounting principles. According to Gillard, the staff analysis considered some common features of accounting standards that contribute to financial reporting complexity, including insufficient or especially detailed application guidance, overly prescriptive disclosure requirements, and differential rules for nonpublic entities, Bosco reported.