The FASRI Roundtable this week (11am ET, Weds Mar 31, 2010) will be lead by Bill Bosco, a member of the IASB/FASB International Working Group on leas accounting, Principal of Leasing101, and long time member of the Accounting committee of the Equipment Leasing and Finance Association (ELFA), a trade association representing the $650 billion dollar leasing industry. From the ELFA website:

The Equipment Leasing and Finance Association (ELFA) is the trade association representing financial services companies and manufacturers in the $650 billion U.S. equipment finance sector. ELFA members are the driving force behind the growth in the commercial equipment finance market and contribute to capital formation in the U.S. and abroad. Overall, business investment in equipment and software accounts for 8.0 percent of the GDP; the commercial equipment finance sector contributes about 4.5 percent to the GDP.

You won’t be too surprised to hear that Bill has some concerns about the proposed standards for lease accounting, which would make it harder for lessees to keep lease-like financing off their balance sheets, while simultaneously delaying revenue recognition by lessors (the lessee would recognize a liability instantly, while the lessor would recognize revenue over the term of the lease).  In an article focusing on the trucking industry, Bill notes four particular issues:

• Increased cost of capital — With more assets on their balance sheets, lessees may be required to hold additional capital.

• Increased cost to small businesses — Complex rules will be applied across the board to all leases, regardless of their size and/or nature. The costs of the proposals are likely to significantly outweigh any benefits for smaller lease transactions and smaller, less sophisticated lessees. Because 95% of leased items are small ticket, these transactions will be most affected.

• Treatment of certain options will be difficult and costly to apply — The new rules would favor a single asset and liability model in an approach that implies lessees will have to determine their most likely lease term when confronted with lease contracts that include options. Requiring lessees to make an estimate of their most likely lease term is unrealistic and burdensome and involves a significant amount of guesswork.

• Timing — Companies across the spectrum are reporting significant decreases in business volume, increases in bankruptcy filings and lowered earnings as a result of the economic environment. An accounting standard that distorts economic reality by accounting for all leases the same way erodes earnings per share, creates deferred tax liability and causes companies to amortize assets more quickly than they should will add unnecessary burden to companies under economic pressures.

Bill is also quoted in this CFO.com article, “When is a Lease a Lease?”

Please join us in a discussion of the industry view of the significant changes being proposed by the FASB and IASB.  Information on how to participate is here.