FASB/IASB lease accounting “Divergence.” Far from converging, the FASB and IASB have decided to take different routes concerning lease accounting. While both boards decided to capitalize all leases on the balance sheet, the FASB decided to allow companies to use one of two methods to expense the capitalized assets and liabilities: Accelerated Expense Method (called Type A Leases in the Exposure Draft) or Straight line expense method (Type B). The method used depends on if the asset qualifies as an operating lease versus a capital lease under current accounting guidelines. Capital leases would be treated as Type A leases, while operating leases would be considered Type B. The IASB, on the other hand, has elected to require all companies to use the Accelerated Expense Method for all leases. The boards stress that they will continue to work together to prepare a converged solution, however this is a very significant difference in approaches. Here is a free tool you can use to determine if your lease is a Capital or Operating Lease. It goes through the 4 tests for capital leases. To access the test (for free), click here.
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