FASB Formally Adds Project to Reconsider Lease Accounting

Board Responds to Investors’ Request for Clearer Reporting of Leasing Arrangements

Norwalk, CT, July 19, 2006—The FASB today formally added to its agenda a project to reconsider the current accounting standards for leases. The goal of that project is to insure that investors and other users of financial statements are provided useful, transparent, and complete information about leasing transactions in the financial statements. The decision to add a leasing project, which will be conducted jointly with the International Accounting Standards Board, reflects the Board’s concern that the current accounting in this area does not clearly portray the resources and obligations arising from lease transactions.

Before making this decision, the FASB consulted with its constituents, including the FASB’s Financial Accounting Standards Advisory Council (FASAC), its User Advisory Council (UAC), and the SEC staff. Many of those constituents urged the Board to undertake a project, expressing the view that current lease accounting standards fail to provide complete and transparent information. In fact, the SEC staff formally raised issues with, and recommended improvements to, this area as part of its June 2005 report to Congress on off-balance sheet arrangements as required by the Sarbanes-Oxley Act of 2002.

Leases serve a vital role in businesses around the world. The current U.S. accounting standard in this area, FAS 13, Accounting for Leases, was established in 1976. While that standard represented a significant improvement at the time, lease arrangements have evolved considerably over the past 30 years and the standards are outdated. Today, leasing arrangements can vary from simple rentals of equipment to complex, tax-motivated arrangements involving real estate and other types of assets. Moreover, the current accounting standards in this area are complex and rules-based, which makes it possible to structure transactions to achieve desired accounting outcomes.

"The Board has been asked to take a fresh look at the current accounting standards on leasing for a few reasons," said Leslie F. Seidman, FASB Member. "First, investors are concerned that existing standards do not require balance sheet recognition of significant assets and liabilities arising from leases.  Second, current accounting guidance in this area is rules-based and voluminous.  Accordingly, the goal of this project is to develop principles that would faithfully represent lease transactions in the financial statements of lessees and lessors and would reflect similarities and differences in the wide variety of leasing arrangements prevalent in today’s business environment."

"One of the initial steps will be to form a working group made up of interested parties with knowledge and expertise about a wide range of leasing arrangements. We are coordinating that effort with the IASB. We will also continue to seek input from our advisory councils and Investor Task Force," Ms. Seidman said.

The FASB and IASB agreed that the first major milestone relating to this project will be a Preliminary Views document, which they plan to issue for constituent comment in 2008.

About the Financial Accounting Standards Board

Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information. For more information about the FASB, visit our website at