Up goes another white flag at the Financial Accounting Standards Board, this time related to a controversial proposal to get leases on to corporate balance sheets.

The FASB and the International Accounting Standards Board are acknowledging that all leases are not necessarily created equal, so perhaps there might be some reason to create two categories of leases. The categories the boards are considering would look a lot like today's operating leases and capital leases.

The boards have agreed to consider a structure where “finance leases” would be treated like an installment purchase, putting an asset on the balance sheet as well as a liability to be paid down over time. “Other-than-finance” leases would also appear on the balance sheet, but would flow through the income statement like today's operating leases because the financing element would not be considered significant.

That's different from the boards' original proposal that would establish a single accounting method for all leases. The boards have asked their staff to establish indicators that would be used to identify the difference between the two types of leases and do some outreach to see if that would quell the criticism of the original proposal.

In addition, the boards have softened their views on how companies should account for renewal options and other factors that lead to variable lease payments when it's not clear at the outset of the lease when or whether such circumstances would ever come into play. The original exposure draft required companies to do plenty of projecting about their ultimate obligation and include estimates of future payments in the upfront liability, which raised objections in comment letters about uncertainty and complexity.

Through their redeliberations, the boards decided to raise the threshold for deciding when lease renewal options should be included in the liability. The original proposal required them to be included if it was “more likely than not” that the company would renew the lease, but now the boards are thinking that renewals should only be considered in the upfront value if there's a significant economic incentive for the company to extend the lease.

The boards also tentatively concluded that lessees and lessors should follow the same basic guidelines for deciding if an obligation tied to some kind of variability would be included in the liability or the receivable. Anything based on an index or a rate would be deemed certain enough to be included, along with any other factors or circumstances that are considered reasonably certain. Residual value guarantees should be taken into account when calculating the liability, the boards have decided, as should any penalties for term options.

The FASB has done some backpedaling in recent months on its major proposals, most notably pulling back from a call to measure all financial assets and financial liabilities at fair value. The board also backed away from a controversial rewrite of rules regarding the accounting for contingencies.