That is the Question! Big changes can be expected for GAAP accounting. Whether or not International Financial Reporting Standards (IFRS) are fully adopted by the United States, both the FASB (US governing body of accounting standards) and the IASB (International governing body for IFRS) have been collaborating on convergence standards that WILL affect reporting standards in the United States.

One change in particular has been with regard to the accounting for operating leases. Current GAAP standards dictate that operating leases do not show up on an organization’s balance sheet (off-balance sheet accounting). They are treated as period expenses. This is in contrast to capital leases where they appear on the balance sheet as both an asset and a liability. Additionally for capital leases, the present value of the lease expense is treated as debt. Many organizations prefer the off-balance sheet accounting associated with operating leases. One reason is that organizations may have strict debt covenants that could be affected with capital leases and having to report too much debt in their financial statements. Users of financial statements have argued that operating leases don’t fully represent leasing transactions.

The result has led both the FASB and the IASB to work on a convergence standard that would address operating leases. In May of 2013, another revised exposure draft was released regarding this issue. It was open to public comment through September 13, 2013. Although still not finalized, it appears that operating leases greater than 12 months being reported on the balance sheet will eventually come to fruition. For further details and guidance, see the following: http://www.ifrs.org/Current-Projects/IASB-Projects/Leases/Exposure-Draft-May-2013/Documents/Snapshot-Leases-May-2013.pdf.


About Blackman & Sloop CPAs, P.A.:

Blackman & Sloop is a full-service CPA firm headquartered in Chapel Hill, North Carolina and is actively involved in auditing, taxation, management consulting, financial planning, and related services. The firm directs a large part of its services toward providing management with advice on budgeting, forecasts, projections, financing decisions, financial analysis, and tax developments. The firm also performs review and compilation services and prepares not-for-profit, corporate, individual, estate, retirement plan, and trust tax returns as well as technology consulting services regarding installation and training on QuickBooks. Blackman & Sloop provides services in Raleigh, Durham, Chapel Hill, RTP, Hillsborough, Pittsboro, Charlotte, and the rest of North Carolina. To find out more please visit http://www.blackmansloop.com

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