FASB, IASB reach agreement on lease expenses
BY MICHAEL COHN / NORWALK, CONN.
The Financial Accounting Standards Board
and the International Accounting Standards
Board announced in mid-June that they have
agreed on an approach for accounting for
lease expenses.
The two boards had favored differing ap-proaches on income statements for lessees
during a tense meeting in London at the end
of February. The majority of FASB members
favored an “interest-based amortization
method” under which leases that transfer
substantially all of the risks and rewards of
a risked asset would be accounted for under a right-of-use model. The IASB favored
an approach in which the right-of-use asset
would be amortized based on the estimated
consumption of the value of the underlying
lease asset. The two boards agreed at the time
to do further outreach with their constituents
and reconvene later.
The boards had originally undertaken the
leases project to address the widespread concern that many lease obligations currently
are not recorded on the balance sheet and
that the current accounting for lease transactions does not represent the economics of
all lease transactions. So far, any decisions
on the leasing project reached to date are
preliminary. The boards said they plan to
release a joint exposure draft in the fourth
quarter of this year.
The two standard-setting boards had
previously agreed that leases should be re-
corded on the balance sheet, but have con-
tinued to discuss their disagreement over the
classification and pattern of expenses in the
income statement. In the decision reached
last month, the boards decided upon an ap-
proach in which some lease contracts would
be accounted for using an approach similar
to that proposed in the 2010 exposure draft
on lease accounting, and some leases would
be accounted for using an approach that re-
sults in a straight-line lease expense.
“The boards carefully considered the di-
verse views of stakeholders about whether
the income statement profile of all leases
should be the same,” said FASB Chair Leslie
F. Seidman in a statement. “On balance, we
decided that leases that convey a relatively
small percentage of the life or value of the
leased asset should be recognised evenly over
the lease term.”
Now that the two boards have resolved the
issue, they plan to re-expose the latest version
of the revised lease accounting proposals.
“The boards have reached agreement on
a proposed approach to put leases over one
year on the balance sheet,” said IASB Chair-
man Hans Hoogervorst. “We will publish our
proposals for public comment, with a view
to completing this important convergence
project during 2013.” AT
cial assets like debt and equity investments,
including pension funds? We think FASB
should put cash flows from all financial in-
vestments in the investing section (along with
income taxes), instead of attributing some to
operations.
WRAPPING UP
We have aimed important messages to two
different parties.
First, to FASB: The statement of cash flows
is the simplest statement of all because there
are no issues concerning the cash flows’ existence and amounts. They should make the
statement more informative and comprehensible by following that idea to its logical conclusion. The outcome should be immensely positive.
Next, to CGMA holders and AICPA members: Strike that renewal fee from your AICPA
dues bill (see sidebar at right). We believe
they’re urging you to sell out your integrity
and they don’t mind that they’re deprecating
the value of the best credential you already
have, the Certified Public Accountant, just so
they can rake in more money from the many
thousands of CGMAs spawned overnight by
the joint venture with the Chartered Institute
of Management Accountants.
Don’t kid yourself: This designation after
your name will proclaim that you’re either
sufficiently gullible to fall for a hoax or, what’s
worse, sufficiently devious to join with its perpetrators. Why would you want to make either
of those representations about yourself? AT
MEMO 2
To the targets of the CGMA
On January 31, during the busiest part of your year, more
than 130,000 of you who are members of the American
Institute of CPAs learned you had been selected for a free
six-month trial of the latest scheme foisted on you by the
institute. (Our exposure of this appeared in our March 2012
column; “CGMA ploy brings Cognitors back as CoGMAtors;
is AICPA 2.0 next?” page 16.)
On that date, you were involuntarily dubbed a “
Chartered Global Management Accountant,” whether you
wanted to be one or not. If you believe the pretentious
hype, you might think you’re one of the world’s greatest
management accounting experts. No joke. The institute is
spending millions of dues dollars trying to legitimize this
bunkum.
Why is it bunkum? Just consider what you did to prove
your expertise: What specialized education did you have to
complete? None! What exams did you have to pass? None!
What evidence did you have to submit to prove you have
meaningful management accounting experience? None!
In fact, the CGMA was granted to everyone whose
AICPA membership records indicate that they’ve worked in
“financial/management accounting” for three years, or for
only two if they were in public accounting for one year. Because all you have to do is write a check, the CGMA label is
no more valid than an “Accountant of the Year” plaque you
might present to yourself.
This transparent sham means you’ll actually weaken your
résumé if you put CGMA on it. Instead of proclaiming your
expertise, those four letters identify you as either a naive
sucker or a grifter who got something for nothing.
