Implicit in the FASB’s conceptual framework is a balance sheet (rather than an income statement) perspective. This has nothing to do with the relative decision usefulness of balance sheet vis-à-vis income statement information. Instead, it is the result of a decision (which I agree with) to define income in terms of changes in net assets.

Despite 30 years of defending a balance sheet perspective, the Board still on occasion makes decisions that seem to be driven by a belief about the “right” amount of income to recognize in a given period. Balance sheet line items are, in those moments, stripped of their conceptual primacy and become mere plugs between income statement amounts.

While there are (unfortunately) numerous examples of this inconsistency (e.g., anytime the possibility of a day-one gain arises), I was prompted to write this post by a recent tentative decision as part of the redeliberations on leasing. One of the proposed changes to the leasing ED would be to create a distinction between “finance” leases and “other-than-finance” leases. Unlike the current distinction between a capital and an operating lease, both of these new lease types would be capitalized on book. However, similar to the current distinction, a finance lease would show up on the income statement as interest and amortization amounts, whereas the other-than-finance lease would simply reflect rent expense.

Given that the right-of-use asset associated with the other-than-finance lease will have to be amortized, you might wonder how a straight-line expense pattern would arise. The tentative decision is to measure the amortization of the right-of-use asset as the difference between the straight-line expense amount and the interest expense amount.

While there might be economic meaning in the asset measurement being proposed for an other-than-finance lease, I’m not seeing it. Seems like a plug to me…a plug necessary to get the income statement expense to the “right” amount.

I wonder what Sprouse would say if he were at the table during these redeliberations?