CEOs and CFOs are cautiously eyeing the limitations that convergence of FASB and IFRS standards may bring to lease accounting. Predictions are that a new global lease standard, anticipated in 2011, will require many traditionally classified operating leases into the capital lease status.

QUESTIONS:

1. What are the current FASB criteria for classifying leases as either operating or capital leases?
2. What is the general concept that the FASB and IASB are considering as the way to distinguish between capital and operating leases?
3. Explain how this new reclassification would cause “balance sheet blues” and companies that lease to “appear more highly leveraged?”

SOURCES:

Johnson, S. (2009). “Balance-Sheet Blues,” CFO (Retrievable online at http://www.cfo.com/article.cfm/14457794/c_2984368/?f=archives)