The lessor of two evils

We’re approaching the business end of the IASB-FASB convergence process and the standards are beginning to roll out.

By June next year both boards have to have the their significant, and most difficult standards converged if they want to claim they are substantially converged.

So the boards have been rolling out joint standards, and will jointly consider feedback. Sounds like a fairly neat solution, however cracks are beginning to emerge. Last week’s lease standard caused a bit of a ruckus.

The most venom was saved for the lessor side of the accounting proposals which has been criticised as overly complex and misguided.

The IASB originally had argued to drop the lessor side completely. Even FASB originally wanted to drop the lessor side, but after mulling over the issue changed its mind believing the lessee and lessor sides of the standard should be consistent.

So the IASB went along and included lessor accounting proposals, and must now deal with barrage of criticism the proposals are likely to receive.

Criticism of the lessor accounting proposals will inevitably lead to criticism of the two boards for including the proposals, which leads to criticism of the convergence process and the IASB itself.

It highlights the challenges the IASB has ahead. Any new standards, which include unpopular concessions for FASB will ultimately attract criticism of the convergence project.

It’s interesting to look at how long lease accounting has been on the agenda. Back in 2001, when the quasi-official G4 + 1 group was looking at leases a FASB member, called Robert Herz, sat down to outline some of the possible options to resolve the area.

Related reading