Hitting an impasse over how to account for short-term, rental-like leases, the Financial Accounting Standards Board and the International Accounting Standards Board will regroup this week to discuss their findings after additional research on an eleventh-hour proposal.

FASB and IASB are in the home stretch of redeliberating a new accounting standard for how to account for all leases to bring them on the balance sheet and banish the bright-line distinction between operating leases and capital leases. The boards have long wrestled, however, with how to develop a straightforward method to account for leases like today's operating leases, which tend to represent short-term arrangements for limited access to a given asset bearing little resemblance to the purchase of the asset. They are trying to put the finishing touches on a revised proposal so that it can be issued for a fresh round of comments and wrapped up by 2013.

The boards originally proposed a single model for all leases that would treat the accounting much like the purchase of a financed asset, but the preparers and others argued it didn't match the economics of the underlying cash flow. More recently, members of the IASB developed a “whole contract” approach, which would accrue the average rent as the reported lease cost and adjust the asset value and lease liability each balance sheet date to the present value of the remaining lease payments.

Several FASB members objected to the idea when the boards discussed it earlier this year, worried it would be too tedious and complicated, but they agreed to study the idea further before making a final decision. Both boards assigned their staff members to reach out to preparers for some direct feedback on how the idea would work in practice.

At least two organizations – the Equipment Leasing and Finance Association and the Institute of Management Accountants' Financial Reporting Committee – have spoken up in favor of the idea. ELFA says it's the approach they supported when FASB first discussed bringing leases on to corporate balance sheets as the project got underway in 2006. “It is obvious that there is no one method that will receive unanimous support,” ELFA wrote in a statement. The whole contract approach would achieve the goal of capitalizing lease obligations, the group said, but would retain the current accounting treatment in the income and cash flow statements.

IMA's letter to the boards concedes it's a difficult issue to resolve. “We recognize that it is unlikely that there will ever be unanimity in support of any of the alternatives,” the letter says. “Leasing spans such a broad range of transactions that it is difficult to produce an effective general model.” The committee says the whole contract method seems to be the most responsive to the concerns that have been raised and is most consistent with the economics of the lease transactions it would target.

FASB and IASB plan to meet May to discuss the staff's findings during their outreach activities.