Despite misgivings over how complex its plan for lease accounting has become, the Financial Accounting Standards Board has decided to proceed with issuing for public comment its newest proposal for how to bring all leases on to corporate balance sheets.

In a regular weekly board meeting, FASB voted 4-3 to issue the proposed accounting standards update it has developed after years of re-deliberating its 2010 proposal. At least two board members said they planned to include alternative views, or different ideas on how to approach lease accounting. The board has struggled long and hard over how to develop a logical approach to account for the wide variety of leases companies typically enter, with some resembling the financed purchase of assets and others serving more as short-term rental agreements.

The proposal has become complicated because the board has tried to create a single model for all leases when there isn't agreement on how all leases should be treated, said FASB member Hal Schroeder. “There is no uniform view as to what the economics are in a lease transaction,” he said. “It's extremely difficult to come up with anything other than a complex accounting model” when the board is trying to fit a wide variety of lease types into a single accounting approach, he said.

FASB member Tom Linsmeier says he believes the proposal the board has developed will send users searching in numerous places throughout various financial statements searching for the details they need to understand lease obligations, yet still leave them short. “The footnote does not bring it all together for users,” he said. “If they are trying to bring all that information together from the financial statements, we did not provide them sufficient information. We've created a very complex proposed standard that does not serve users' needs.”

FASB Chairman Leslie Seidman said the process of revising the board's 2010 proposal proved “much more iterative and much more inconclusive than I would have liked.” She believes the board has done its job in gathering feedback and working with stakeholders to address concerns. “There just does not seem to be a coalescence of views on how to make this improvement,” she said.

Seidman noted she didn't support the exact provisions in the standard for how to distinguish between finance-type and rental-type leases. “My personal preference is not where we have drawn the line,” she said. But when she weighs it against the improvements that are provided in the proposal, she remains supportive of the package, she said. 

FASB member Russ Golden said he wants to issue the proposal because it represents an improvement over current accounting, where leases are often structured in a way that enables them to escape recognition. “We are getting rid of the concept where minor changes in the economics will have drastic difference in the balance sheet,” he said. “I am supportive of moving forward with this.”

The International Accounting Standards Board is still on board with issuing its proposal as well, Seidman noted, and it is highly converged with FASB's proposal. “We've worked tirelessly with the IASB on this proposal, and going out with a converged proposal is a significant accomplishment,” she said. Seidman noted the board is already prepared to put a significant effort into a third round of comments, outreach and deliberation as it puts the finishing touches on the proposal. The board is already searching for volunteers for field testing, she said

FASB expects to publish the proposal soon with a comment period ending sometime in September.