The Financial Accounting Standards Board (FASB) issued a proposal in August that could dramatically change the nature of accounting for operating leases.
It’s part of an effort to conform U.S. accounting standards to international rules. It is in response to criticism that U.S. accounting doesn’t currently record a liability for operating lease obligations, although a company could be obligated to fulfill a lease for the next few years. If it is an operating lease, there is currently no asset or liability recorded on the balance sheet under U.S. accounting rules.
What is the reason for this new proposal?
There has been a push over the last several years to standardize things on a worldwide basis. If you look at international accounting standards, the thought is, ‘We do it this way in Europe, but if we do it a different way in the U.S., it can cause confusion.'
The impact on small businesses can be an undue burden, not just with this proposal, but when an effort is made to standardize things across the board for both privately-held and publicly-traded companies. They live in two different accounting universes, so to speak. So what’s good for the goose is not always good for the gander. With that said, you still have to follow the rules.
Click here to read more frequently asked questions about operating leases and post a comment below or contact our Accounting & Auditing Team at 440-449-6800 with any questions.