A wide range of US trade organizations have asked the Financial Accounting Standards Board (FASB) to exempt private companies from applying the forthcoming lease accounting standard that's expected to be issued in late February.
In a recent letter the organizations also urged FASB and its Private Company Council to disclose what private company investor interest is being addressed in the leases standard, “and what private company investors were consulted” in their discussions.
Concerns over harm to private companies
The organizations, which include the US Chamber of Commerce and Financial Executives International (FEI), expressed concerns that application of the lease accounting standard would be harmful for private companies.
“We are concerned that the decision to apply the soon-to-be finalized lease accounting standard to private businesses will exacerbate complexity, not meet the needs of private company investors, and harm capital formation for those businesses,” the letter states.
Asked by Bloomberg BNA whether the board plans to further address the issue, a FASB spokesperson said: “we appreciate the input provided by the organizations, and will consider it as we do all comment letters.”
Leases on balance sheet
The forthcoming leasing standard has generated a lot of controversy because it will require companies—for the first time—to record long term lease obligations on their balance sheets. Currently, such items, worth billions in combined dollars, are kept off the balance sheet.
FASB has said the proposal would give investors, lenders and others a more accurate picture of the financial conditions of the companies to which they provide capital.
The proposal includes some accommodations for private companies relative to discount rate considerations and the effective date. For public companies, for example, the rule would go into effect for fiscal years beginning after Dec15, 2018, but private companies have an additional year to apply it.
Private companies different
Though the standard will include some accommodations for private companies, it isn't clear that the board has gone far enough, according to viewpoints put forth in the letter.
“Such a decision would wrongly presume that users of private company financial statements would prefer capitalizing leases on balance sheet,” the letter states. “However, since users of private companies are different than public company financial statement users, in both composition and motivation, this may not be the case.”
The organizations said that requiring private companies to apply the provisions is presumptuous because the standard wasn't developed from a private company perspective, thereby heightening the potential that it won't be compatible to the needs of private company users.
“The development of the public company lease accounting standard has taken years and, while the debate has been a long time and controversial in the public company realm, it is less apparent why this standard should be applied to private companies,” the letter adds.
In addition to the Chamber of Commerce and FEI, the other organizations that signed the letter include Independent Bankers of America, International Council of Shopping Centers, National Association of Realtors, and the Commercial Real Estate Development Association.