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07 November 2013

FEI urges IASB and FASB to reconsider the "display approach"


The Committees on Corporate Reporting ("CCR") and Private Companies, Standards ("CPC-S") of FEI provide additional information for the IASB and the FASB to consider as they debate on the direction to take with the Lease Accounting Project.

In addition to the models proposed in the two EDs, FEI understands that the Boards are exploring accounting for all leases as “Type A”, accounting for all leases as “Type B”, and accounting for the lease asset as a series of forwards. FEI is concerned that each of these recognition and measurement solutions for lessees will involve major investments in systems, technical and audit resources, coupled with a robust interpretive process. Among other issues, FEI would expect that substantial time will need to be devoted to questions relating to scope (e.g. lease vs. service contract), determining the unit of account and lease term. Inevitably, the revised language and requirements in a comprehensive recognition and measurement solution also will engender significant interpretive work in order for constituents to understand how to apply these new requirements (e.g.,definition of lease payments). FEI believes that in pursuing these recognition and measurement alternatives, the Boards will be making a substantial commitment of their own resources to interpreting and potentially amending these requirements over a period that could last for many years after adoption. Given the level of uncertainty regarding the degree to which financial statement users find these potential changes to be an improvement in financial reporting, coupled with resource demands that will be placed on preparers, auditors and investors, it is a reasonable question to ask whether the benefits derived from any of these models are commensurate with this level of resource commitment.

FEI believes that now would be an appropriate time for the Boards to take a step back and consider this decision in the context of the size of this standard’s footprint on financial reporting. With a comprehensive revision of revenue recognition guidance on the cusp of issuance, the inevitability of major changes in the accounting for financial instruments, coupled with pending changes to insurance accounting and new priority projects being added to the agenda, FEI questions whether making such a significant resource commitment to leasing is warranted. There also is the very real question as to how much change can be absorbed at this time, with many of these projects coming to a conclusion over the next six to 18 months. FEI thinks that the present circumstances warrant a more limited, evolutionary approach to lease accounting that would have as its primary goal providing greater transparency into the obligations inherent in traditional operating lease contracts.

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