Appar­ently FASB is going to overhaul the US GAAP for leases. I’m not sure what exactly is going to be changed, or why it needs changing, but it’ll be inter­esting to see. Of course, Canadian standards are moving towards harmo­nization with Inter­na­tional Financial Reporting Standards (IFRS), so we might not see Canada following the US revision like we usually have seen occur in the past.

I’ve been discussing the current method of accounting for leases with Greg, whose site I stumbled upon today searching Technorati for accounting-related content. He was blogging about an article in Business Week, and what follows is a quote from that article that may give us some insight into the possible changes:

One new model that FASB will explore, says Herz, would treat a lease as a “right to use” the property, which would be given a value and included among the liabil­ities and assets of the company that is leasing it. Companies argue that infor­mation about these leases is not secret, but is readily available in the footnotes of their annual reports. However, Bear Stearns analyst Chris Senyek has found that such disclosure is far from consistent, with some companies leaving out vital infor­mation such as the length of the lease. And the databases that many investors consult to sort through a company’s perfor­mance generally don’t include the data from footnotes.

Not sure what the “right to use” means as far as the difference between current rules about leases goes, given that we already have a good method for valuing a lease (the present value of minimum lease payments) asset and corre­sponding liability. Basically the FASB believes the rules need to be clarified because the criteria have been abused to show more leases as operating versus capital. But that’s just the difference between US rules-based accounting and Canadian and inter­na­tional principles-based accounting.

Plus, the article even notes that the infor­mation is already contained in the notes to the financial state­ments. My firm has a footnote on every page of the financial state­ments we produce that clearly states “The accom­pa­nying notes are an integral part of the financial state­ments.” If investors are ignoring that infor­mation, is this really an accounting problem?