It looks like proposed changes in accounting practices that would affect fleets that lease trucks will not go into effect as soon as originally expected.

The U.S. Financial Accounting Standards Board and the International Accounting Standards Board have been working on a "convergence" project to align their accounting standards in several areas, including lease accounting.

As we reported earlier this year, the FASB and IASB plan to issue a new accounting standard that changes how leases are reported in financial statements.

While the details have not yet been finalized, it seems pretty certain that fleets will have to start reporting operating leases as an asset on their balance sheets. Under current rules, these types of leases are totally off the balance sheet, except for footnotes, and the lease payment is simply recognized as an expense on the income statement.

The proposed changes revise current accounting treatments under existing U.S. Generally Accepted Accounting Principles and International Financial Recording Standards. These changes will not change anything on your taxes, only in your financial reporting.

The FASB initally wanted the new rules made final in June, but now says that won't happen until later in 2011, possibly the end of the year. And then, after finalization of the rules, experts say that 2015 is likely to be the earliest they'd be implemented. The previous timetable would have put them in place as early as January 2012.

Complaints of Complexity

"Accounting Today" reports that FASB chair Leslie Seidman gave an overview of the work last week, and said they were taking extra time to get the standards right and trying to simplify them to make them easier for accountants to apply.

She noted that the two boards are in "active re-deliberations" as they carefully work through all the issues raised, "Accounting Today" reports, including a common complaint about the level of complexity in the original proposal.

"There have been a large number of comment letters received by the boards concerning the proposed rules," said Brent Stevens, corporate services manager with Paclease, in a webinar on the topic earlier this year. "Most have been fairly critical of some of the requirements, primarily some of the complications that may arise in complying with the proposed rules. Regardless of those letters, it's likely that leases will be reported on balance sheet. There may be some revisions to the proposal, but the bottom line is there will be on balance sheet treatment going forward."

Olen Hunter, director of sales at PacLease, said in a recent interview that the new standards will mean increased complexity in accounting. He compared it to when the Sarbanes-Oxley Act of 2002 implemented a number of new or enhanced standards for public company boards, management and accounting firms. Companies will have to invest some accounting time and money to make sure they are meeting the new standards.

In the trucking world, much of the burden may fall on leasing companies, which will need to "unbundle" the maintenance portion of a full-service lease from the actual equipment lease itself.

"The question is, how much do you capitalize and how much do you amortize?" he said, noting there has been some discussion of an amortization schedule like that of a home mortgage, where the interest expense is largely up front. This may happen, he said, with certain types of leases that transfer ownership.

Will Leasing Suffer?

"I don't believe it will impact the leasing business that much," Hunter said. "Most of our customers are interested in using our money to finance trucks instead of their money. That benefit is still there, and so is the maintenance benefit, and the economies of scale in purchasing parts" that a larger leasing organization can achieve more so than most fleets.

Some people have expressed concern that having to report leases on the balance sheet will negatively impact their credit rating. But Hunter noted that studies show that even though leases are currently reported only in footnotes, that banks and other lending institutions do take those footnotes into account -- and that in fact they often overestimate the impact of those footnoted reports.