When FASB and IASB began their joint project to revise lease accounting standards, the intention was to produce a standard that would provide consistent accounting for leases on a global basis. However, they have not been able to fully achieve this goal.
The biggest difference between the two new standards relates to the way in which lessee operating leases are treated from an income statement perspective. While both standards require companies to reflect virtually all these leases on their balance sheet, the two boards take a different approach to the lessee income recognition model.
Outside the United States, the IASB standard treats almost all leases (apart from short term ones) like today’s finance or capital leases. This means the lessee's expense is front-loaded over the term of the lease.
The FASB, meanwhile, has retained a dual approach to the classification of leases, one of which, treats the expense of operating leases on a straight-line basis. Guidance similar to the classification model under the current generally accepted accounting principles in the United States will be used to decide whether a lease is a finance lease or an operating lease.
Because all leases will be classified as finance leases for IASB (but may be viewed as operating leases for FASB), the way in which they are subsequently amortized and shown on a company’s Income Statement will be completely different.
Dedicated to helping you meet the new US GAAP and IFRS Lease Accounting Standards, the Trimble Manhattan team has been thoughtful and deliberate in its development of the new Manhattan FASB/IASB functionality.
To learn more, please visit 'Are you on the road to FASB/IASB compliance?'