Thanks to Danielle Zeyher, FASB project manager, and all who participated in a lively and informative FASRI round table on proposed new lease accounting standards. The FASB and IASB are preparing what could be a giant step that would bring more than $1 trillion of debt onto balance sheets of public U.S. companies alone (e.g., The Analyst’s Accounting Observer, September 27, 2010; New York Times, June 22, 2010).  Watch the FASRI posts for a link to the audio of today’s round table. 

During today’s round table, I promised a cite to a working paper that provides evidence consistent with credit ratings failing to reflect currently off-balance sheet obligations related to operating leases. Click here to see that working paper by Steve Lim, Steven Mann, and Vassil Mihov. The paper’s evidence suggests that despite rating agencies’ adjustments that capitalize operating leases, those rating agencies do not treat operating leases in the same manner as on-balance sheet debt when determining credit ratings. If the FASB-IASB proposals are implemented, the term operating lease may virtually disappear from accounting terminology, and all lease obligations will be recorded on the balance sheet. If implemented, it will be interesting to see whether credit ratings change as a result of the accounting changes.