lease accounting FASB IASB Whole Contract Approach

lease accounting FASB IASB Whole Contract Approach: "After months of heated debate, the Financial Accounting Standards Board and the International Accounting Standards Board today split their differences and decided to give corporate finance and accounting executives the choice of using either of two methods to account for lease expenses on the balance sheet. The two methods out of the previous four that the standard setters agreed on were the “right of use” approach (Approach A) and the “whole contract method” (Approach D).

The two approaches differ greatly from each other but together seem to satisfy a variety of constituents as well as the boards. Approach A takes the underlying asset of a lease and amortizes it in what’s considered a “straight-line” fashion. Approach D lets the lessee allocate the lease payments evenly throughout the lease.

FASB and the IASB agreed previously to have leases of more than one year be recorded on the balance sheet. But the boards received a backlash from accounting firms, trade groups, and corporations concerning the best approach to use in reforming lease accounting.

Both methods faced some criticism. Approach A was blamed for front-loading lease costs. The Internal Revenue Service is said to be puzzled by whether or not there should be an interest expense recorded in Approach D, since payments are made over time.

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