WASHINGTON, DC-The US Financial Accounting Standards Board andthe International Accounting Standards Board have resolved a keysticking point as they work to establish a converged standard forlease accounting: how to account for lease expenses. The boardshave opted for a two-method strategy depending on the type oflease—whether, that is, the lease involves the transfer ofownership rights or the transfer of right-of-use.

In the right-of-use approach, which is now called Approach 1,explains Bill Bosco, a consultant for the Washington, DC-basedEquipment Leasing and Finance Association, the lease is capitalizedand the asset is amortized straight line and interest is imputed onthe liability. The result is a front-ended expense pattern. A leasein which ownership is transferred, typically an equipment lease,will use the Whole Contract, or Approach 2, methodology. In thatscenario, the asset and liability are capitalized then adjustedeach month to equal the present value of the remainingpayments.

The irony is, observers say, that this duel approach is muchlike the current GAAP method. “All that is likely to change is thatreal estate lessees will capitalize the former operating leases,”Bosco, who is also principle of Leasing 101, tells GlobeSt.com.“It’s great news for the commercial real estate industry.”