The project on lease accounting is a joint project of the FASB and the International Accounting Standards Board. The
Boards undertook the project in an attempt to create a single worldwide standard that would require lessees to recognize assets and liabilities arising from leases.
The project has its roots in the financial reporting scandals of the early 2000s that focused attention on off-balance sheet
transactions. In 2005, the SEC recommended changes to the existing lease accounting requirements to ensure greater
transparency in financial reporting. The FASB and IASB responded with a proposal in 2010 that was modified in 2013
to establish a “dual model” for lease accounting that would replace the familiar distinction between operating and capital
leases under current US accounting standards.
Our related MHM Messenger 15-13 outlines a five-step approach to assessing the impact of the proposal. This document provides
the answers to questions that may arise in connection with that approach. The five basic steps are:
1. Identify agreements that meet the definition of a lease.
2. Estimate the impact on the financial statements.
3. Probe the regulatory and tax implications.
4. Anticipate the changes in processes, systems and controls.
5. Weigh the pros and cons of alternative strategies.