Accounting for leases under the forthcoming exposure draft: will businesses welcome the guidance?

The old accounting rules for leasing will soon be resigned to history. The new rules will improve the transparency of financial statements by eliminating "off-balance sheet" accounting for leases and the unfaithful representation of the rights and obligations of leases arising from long-term operating leases. Even though the facts regarding leases have not changed since FASB issued SFAS 13 in 1976, the boards are about to issue a new exposure draft that emphasizes the symmetry of lessor and lessee accounting, disregarding the substance of most equipment leasing arrangements. As result, the authors predict that the main issue in most comment letters will be why equipment leases are treated differently than real estate leases, when legally they involve the same obligations and transfer of a right of use. Standards should be based on principles, and the arbitrary rule that requires different treatment for equipment leases should be hard to defend.