Boards Closer to Forcing Clearer Lease Disclosure
U.S. and European accounting rule makers moved a step closer to forcing companies that rent large amounts of property and equipment to make those costs clearer to investors.
The Financial Accounting Standards Board and the International Accounting Standards Board voted Wednesday to proceed with changes to accounting rules that may tighten standards for leases.
The accounting bodies are concerned that leasing costs are too often hidden in footnotes of financial statements, enabling companies to mask their true liabilities.
Some analysts have estimated that companies may have $1 trillion or more in off-balance-sheet leases. And because payment obligations under those leases are akin to debt, adding leases to the balance sheet would increase companies’ reported debt load.
The decision to proceed with the project “reflects the board’s concern that the current accounting in this area does not clearly portray the resources and obligations arising from lease transactions,” the financial standards board said.
“I think we have received a clear signal from the investing community that current accounting standards are not providing them with all the information they want,” board member Leslie Seidman said before the vote.
The two accounting boards expect to issue a preliminary report on how to handle leases in 2008 before finalizing the rule changes in 2009.