Accounting standard setters have unveiled their long-promised proposal to require companies to put the assets and liabilities assumed under lease contracts—regardless of how they are structured—on the balance sheet.

The Financial Accounting Standards Board and the International Accounting Standards Board have published a joint proposal to modify both U.S. and international accounting rules so that all lease contracts would be evaluated in the same way, ending the structuring that routinely occurs under existing rules to keep most lease obligations off the balance sheet.

The proposal, described in an IASB summary, says any lease contract would be evaluated under a “right of use” approach, which requires both parties to the lease contract to consider whether someone has gained a “right to use” a particular asset. If so, it appears as an asset on the balance sheet to be amortized, or depreciated, over the life of the obligation. The payment obligation appears on the balance sheet as a liability.

Currently, accounting rules allow leases to be structured as either operating leases or capital leases. A capital lease is treated much like the purchase of an asset, leading to an asset and a liability on the balance sheet, but an operating lease leads only to an expense flowing through the income statement.

FASB and IASB said the new approach would give investors a better picture of an entity’s assets and liabilities, eliminating the current adjustments that investors typically make using disclosures and other information they may find available to them. The boards previously published their plans for revising the lease accounting rules in a discussion paper published in March 2009.

In addition to advancing the boards’ agenda to converge U.S. and international accounting standards, the proposal leads to better accounting, said FASB Chairman Robert Herz. “The proposal is intended to improve the transparency of lease accounting and also decrease its current complexity,” he said in a joint statement.

The two boards are planning outreach activities during the comment period to explain the proposal and get feedback on its workability. Standard setters are looking for companies that are willing to confidentially field test the new rules to better assess costs and benefits and help identify any operational issues.

Ross Prindle, managing director for advisory firm Duff & Phelps and leader of the firm’s real estate and fixed asset services practice, said there are some gray areas in the proposal that will need to be worked out, such as defining a lease and distinguishing it from a services contract, among others.

Prindle said bankers who look at leverage and debt covenants will acclimate to the inevitable flood of assets and liabilities that will appear on the corporate balance sheet. But it remains to be seen how the leasing industry will be affected by the new accounting approach, since off-balance-sheet treatment is one of the key benefits of leasing rather than owning real estate.

“It’s pretty clear that this is going to happen,” Prindle said.

The proposal is open for comment through Dec. 15.