US Equipment Leasing Industry Perspective on the Lease Accounting Project 2007 Leaseurope Business...
11
US Equipment Leasing Industry Perspective on the Lease Accounting Project 2007 Leaseurope Business Forum on Lease Accounting Brussels, Belgium Bill Bosco, ELFA Accounting Committee Member [email protected]
US Equipment Leasing Industry Perspective on the Lease Accounting Project 2007 Leaseurope Business Forum on Lease Accounting Brussels, Belgium Bill Bosco,
US Equipment Leasing Industry Perspective on the Lease
Accounting Project 2007 Leaseurope Business Forum on Lease
Accounting Brussels, Belgium Bill Bosco, ELFA Accounting Committee
Member [email protected]
Slide 2
Agenda ELFA Position Project Issues Suggested Framework ELFA
Activities Q&A
Slide 3
ELFA Position The ELFA supports the concept that material
leases should be capitalized Consistent with conceptual framework
and new asset and liability definitions The new standard must
reflect the economic, commercial, tax and legal aspects of the
transaction The new standard must not create more burden for
preparers than meaningful financial reporting for users
Slide 4
Reflecting Reality Ownership vs. Right-of Use Is the substance
(legal/tax) of the transaction a sale or loan? Is the substance
(legal/tax) of the transaction a lease? What are the intentions of
the lessee Return, renew, or buy? Are there tax benefits that
affect the lessors profits?
Slide 5
Cost/Benefit Approximately 70% (& growing) of off-balance
sheet minimum lease payments result from a low volume of real
estate leases and long term large ticket equipment leases Less than
30% (& stable) are from high volume small ticket off-balance
sheet equipment true leases with terms of 5 years or less where:
Lessees return the asset and replace with new lease Lessee not tax
or legal owner of leased asset Each leased item may have unique
PV
Slide 6
Project Issues - Content New rules should reflect uniqueness of
leases not just fit into existing PPE & liability accounting
rules Focus should not be on equipment leases Should not reject
risks & rewards classification concepts in current accounting
model Lessor tax benefits should be included in lessor income
recognition Need positive statement that immaterial leases are
accounted for as operating leases
Slide 7
Project Issues - Process Better use of working group/leasing
trade associations May need to look at more lease types than a
simple equipment lease or look at lease terms Should do market
studies of lease volumes, types, legal and tax regimes Should field
test approaches with users to see cost/benefit
Slide 8
Suggested Framework - Lessee Lessee Accounting Classify leases
as financings (sale/loans) or leases Financings accounted for as a
purchased asset and a loan using implicit rate in the lease as the
discount/interest rate Immaterial true leases accounted for as
operating leases Material lease accounting: Asset and liability
linked as to amortization and fair value accounting Right-of-use
expense is the rent (straight lined)
Slide 9
Suggested Framework - Lessor Lessor Accounting Operating lease
accounting for short term true leases and fractional share leases
Direct finance lease accounting for medium/long term true leases
and financings Sales-type lease accounting where a gross profit
exists Leveraged lease accounting for true leases with significant
non-recourse debt
Slide 10
ELFA Activities Work with worldwide trade associations Keep
members and customers informed Positive stance towards change Make
it known that we are a resource Attend all public meetings Meet
with FASB and staff on issues Work with FASB staff to provide
information Comment formally on exposure drafts and public requests
for comment