New lease accounting would show more expense on balance sheets

Professionals stress education as rule making effort advances

Financial reports for many North Bay organizations could seemingly worsen overnight after an expected change to lease accounting standards next year, and many North Bay accounting professionals are watching closely as an international effort to revamp the approach moves forward.

The Financial Accounting Standards Board and the International Accounting Standards Board, two major standard-setting bodies for accounting in the United States and abroad, announced this month that they have reached a preliminary agreement on the new standard, which seeks to provide clearer depiction of a company’s fiscal obligations by including the full duration of most leases with other assets and liabilities featured on a typical balance sheet.

When adopted, the new approach will appear to increase the financial liabilities reflected in the reporting of many companies, forcing lenders, investors and others to reconsider the calculations used to determine fiscal health and driving trends that could include a more competitive landscape between leasing and financing for property ownership.

“What this change does most significantly is that it removes the operating lease accounting model for most lease contracts, and puts most lease contracts under the capital model,” said Jim Perez, a partner at Pisenti & Brinker LLP and accounting lecturer at Sonoma State University.

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