Accounting for Leases and the Failure of Convergence

Abstract

The Financial Accounting Standards Board (FASB) in the U.S. and the International Financial Reporting Standards(IASB) commenced a work programme towards convergence and the leasing project was added to their agenda in July 2006. The aim of the project was to develop a single approach to lease accounting that would ensure that all assets and liabilities arising under lease contracts would be recognised in the statement of financial position. In March 2009, the IASB, jointly with the FASB, published a Discussion Paper Leases: Preliminary Views. The discussion paper was open for comment until 17 July 2009. In August 2010, the IASB, jointly with the FASB, published an Exposure Draft Leases. The Exposure Draft was open for comment until 15 December 2010. The responses were not favourable. In 2013, a second Exposure Draft ED/2013/6 was issued. Our analysis of the Comment Letters submitted show that the majority of respondents disagreed with many of the proposals in the Discussion Paper. Based on these results the research strategy was amended to conduct a content analysis of the Comment Letters submitted in response to Exposure Draft 2. The analysis concentrated on UK and US companies but included all their Comment Letters, a total of 137. The results demonstrate, at least for companies, that the US respondents overwhelmingly rejected either the accounting concept or the standard. A further analysis revealed that the greatest disagreement was with the concept of a lease being recognised as an asset in the financial statements