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Dec13
Change and convergence

The hottest topic in US lease accounting these days is, of course, the changes that are expected to be made to FAS 13.  I also answer a lot of questions regarding convergence with the international lease accounting standards, whether in the US or elsewhere around the world.  Since I am constantly dealing with, and understand, lease accounting standards from around the world, the convergence of FAS 13 with the international standard has never really been a concern for me because I know that most standards fundamentally are the same as FAS 13.  I found out that this view is a bit blind, however, in the last several weeks, culminating in the most recent ELFA Advanced Leasing Principles class I have been teaching this week.

 

I have come to realize that when most people ponder converging FAS 13 with the international lease accounting standard (IAS 17) they think that FAS 13 must change dramatically in order to be in sync with IAS 17.  This is not the case, however, as the two standards are very much alike.  Both FAS 13 and IAS 17, for instance, have classification tests regarding automatic transfer of title and bargain purchases options.  Similarly, both standards have tests regarding the relationship of the lease term to economic life, and measuring the present value of the minimum lease payments.  One true difference, though, is that synthetic leases are not allowed under IAS 17.  Other than this, however, the two standards move pretty much in lock step.
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