Proposed Truck Lease-Accounting Rules May Harm Motor Carriers
If you currently lease your trucks, or you’re considering leasing, you need to know that the rules governing how you account for your truck lease are about to change. New rules haven’t been
finalized yet, but they will be significantly different, requiring you to show all leases longer than 12 months on your balance sheet as an asset or a liability.
The rules will not change for shorter-term leases, and FASB will no longer distinguish between capital and operating leases.
The proposed changes are a joint effort of the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), something they’ve been working on since 2006. The project is a response to complaints from those who use financial statements that the current system doesn’t accurately reflect leasing transactions. The new rules have been developed with stakeholder input.
What’s new?
Key elements of the proposed changes require recognition of assets and liabilities for any truck lease with a maximum potential term of 12 months or more. Recognition, measurement and presentation of lease-related cash flows and expenses would depend on the level of economic benefit you derive from the leased asset.
, under the new rules, you would:
- Recognize a right-of-use asset and a lease liability, based initially on the current value of your lease payments.
- Recognize asset amortization and interest on lease liability separately.
- Include disclosures so that investors or other financial statement users could discern the amount, timing and uncertainly of cash flows relating to your lease.
- Have the option of not applying new recognition and measurement requirements to leases shorter than 12 months.
FASB, but not IASB, has “tentatively” determined that private companies can choose to use a risk-free rate to discount their lease liabilities, without disclosing reconciliation of lease liability for the calendar year.
Whether the proposed rule changes are good news or bad depends in large part to your specific situation. One possible interpretation could allow owner-operators to structure agreements in such a way that they aren’t technically a lease, in which case the new reporting rules wouldn’t affect you.
Other than that, there’s no question you’ll have to comply, because the transition will apply to existing leases as well as new ones. But that deadline is still a ways off. The combined FASB and IASB boards anticipate renewing their deliberations by the end of this year, and they expect to announce the finalized new rules sometime in 2014.
Tell FASB what you think.
You still have about a month — until September 13 – to formally comment on the proposed rule changes. You can use FASB’s electronic feedback form, or you can submit your thoughts via email, to director@fasb.org, noting File Reference No. 2013-270.
Tell us what you think, too, by using our comments box below.