Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Changes to new lease accounting (topic 840)– May edition

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John Hufnagle has this month’s update on the FASB’s thinking on how to revise lease accounting. In his post, Lease Accounting (ASC 840) – More Changes to Proposal, he explains the FASB is now thinking of requiring the interest method for amortizing other-than-financing leases (think what is currently an operating lease). That would be a change from their previous thought of allowing a straight line amortization of the liability.

I read the FASB’s project update, located here. It has not been updated for the May meetings that Mr. Hufnagle refers to. I can’t find anything more current than April updates.

One thing I did learn from the April update is the FASB is backing off on the criteria for what lease renewal terms must be included in the lease calculation. previously they were thinking about using the longest term that is ‘more-likely-than-not’ to be exercised. That means assigning a probability of renewal to every term and taking the longest term that is 50% or more likely to be exercised.

Lease term will now be defined as:

the non-cancellable period for which the lessee has contracted with the lessor to lease the underlying asset, together with any options to extend or terminate the lease when there is a significant economic incentive for an entity to exercise an option to extend the lease, or for an entity not to exercise an option to terminate the lease.

More news as it develops.

UPDATE here, with reference to FASB Action Alert.

Written by Jim Ulvog

May 23, 2011, 8:10 am at 8:10 am

Posted in Accounting

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