IASB and FASB to re-expose proposal on upcoming lease accounting changes

On July 21, the International Accounting Standards Board (IASB) and the US-based Financial Accounting Standards Board (FASB) announced they would re-expose their revised proposals for a common leasing standard. This standard is being developed as a joint convergence project for IAS 17/ASC 840 (formerly FAS 13).

While re-exposure for the Boards can be somewhat atypical, the decision to do so in this case was not surprising considering the vast scope of the proposed changes. In a sense, introducing a new comment period seemed unavoidable as there have been significant revisions to the initial exposure draft since it was first published back in August 2010.

What does this mean in terms of timing? A revised exposure draft is expected in the fourth quarter of 2011, with the final standard sometime around mid-2012.  From an adoption standpoint, there is no official effective date (as of yet), however the Boards have previously communicated that it likely would not be any earlier than 2014. There’s a good chance that their decision to re-expose may push that out even further, although that is purely speculation at this point.

Some of the causes for the delays have been a much larger than expected number of responses, significant concern over the cost of reassessing all leases, and comments that the complexity of measurement could spiral to unsustainable levels. The biggest gray area, however, centers on the lessor accounting model. The original overarching goal was to have a single lease standard for both lessee and lessor accounting. The Boards have been discussing whether to have one or two lessor accounting models – the FASB has been leaning towards two (as proposed in the exposure draft), while the IASB seems to prefer a single model. It’s possible that this difference of opinion could result in the Boards breaking down the lease standard, which may allow them to issue the lessee accounting standard (somewhat on time), while delaying the lessor accounting standard to an unknown future date.

So what does all this mean for PeopleSoft customers? As always, Oracle has been monitoring the development of the new standards and our Applications Unlimited and Fusion Development teams have been working closely together to analyze the changes and craft a consistent solution. We are also providing feedback to the Boards from a software vendor perspective to ensure they allow the industry a reasonable timeframe to accommodate the new standards, as well as provide customers enough of a window for implementation and conversion.

From a product perspective, the lease accounting changes primarily impact the PeopleSoft Asset Management and Real Estate Management products, part of the PeopleSoft Asset Lifecycle Management (ALM) suite. The new standards introduce significant functional overlap between our products, which is good in that it will allow us to better leverage our shared feature set (and vast integrations across the FSCM environment) as we add new capabilities.

We invite customers to participate in providing feedback on our design enhancements for lease accounting. If you are interested, please send an email to mailto:howard.shaw@oracle.com or mailto:loida.mcdearis@oracle.com. Stay tuned, as we will continue to comment as more developments arise.

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