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WASHINGTON, DC-The ongoing--and now seriously delayed—efforts by the International Accounting Standards Board and its US equivalent, the Financial Accounting Standards Board, to converge lease accounting standards has caught the attention of two member of Congress, not surprisingly both of whom are also CPAs. Congressmen Brad Sherman (D-CA) and John Campbell (R-CA) sent a letter to FASB signed by 58 other House representatives. They warn the board to carefully rethink proposed rule changes that, if enacted, could have “disastrous consequences” for the real estate industry.

Forcing firms to capitalize the full value of their leases will explode many companies’ balance sheets overnight, especially small businesses, which already book their leases as an expense on financial statements, Sherman says in a prepared statement. “Capitalizing these leases will throw off debt-to-capital ratios, ruin credit ratings and force many companies to pay higher interest rates,” he says. “As a result, most companies will naturally try to reduce the size of their leases by shortening leasing terms, which will increase costs for real estate owners and managers forced to renegotiate complex leases every six or eight months.”

The Sherman-Campbell letter asks that FASB undertake and publish a comprehensive study of the costs of this proposal before any final action is taken. The letter also points to an independent study by Chang & Adams Consulting that found the economic impact of the lease proposal under a best case scenario would increase liabilities for public companies by $1.5 trillion and potentially lead to job losses of over 190,000. This study came out in February 2012, commissioned by a number of business associations including the Real Estate Roundtable, BOMA and the National Association of Realtors.

“It’s fascinating that they latched onto this particular study,” David Kessler, co-managing Principal of Reznick Group's Bethesda office and chair of the firm's national commercial real estate practice, tells GlobeSt.com. Kessler says he is not sure he agrees with all of the study’s findings, but hopefully now that Congress is pushing its findings “it will create a more practical implementation standard.”

More than likely it will not, given the 11th hour intervention by Congress in this particular standards-setting process, guesses David Johnson, principal with Strategic Vision, who has advised on many political campaigns. “This is probably something these Representatives think they can use in their campaigns to show constituents that they ‘stood up for American businesses’ and so on,” he tells GlobeSt.com. “It’s also something they will probably use as ammunition as they lobby businesses for donations.”

When asked about the letter, a FASB spokesman provided GlobeSt.com with the following statement: "We agree that accurate and transparent financial reporting is the cornerstone of global capital markets. Indeed, the primary purpose for adding the leasing project to the board’s agenda was to respond to feedback from investors and other financial-statement users about the lack of transparency relating to material lease obligations that today are reported off-balance sheet."

The statement also noted that FASB and IASB have been working to converge the accounting for lease rights and obligations since 2006 after the SEC staff identified leasing as a form of off-balance sheet accounting that needed to be reconsidered. "Investors have told us that they routinely adjust the financial statements of companies to add the liabilities relating to operating leases,” the statement reads. “The boards’ proposal aims to provide that important information in a consistent, unbiased way to investors—not to influence business activities in any particular manner."

It went on to note that a new exposure draft for public comment can be expected in Q4 of this year. "The Chang & Adams study will be considered as part of the due process procedures that will inform the FASB’s ongoing deliberations with the IASB on this topic,” it concluded.