CFO.com reported that companies that lease equipment could see their profits shrink in the early years of a contract under the new proposed Financial Accounting Standards Board’s (FASB) and International Accounting Standards Board’s (IASB) June 13th proposal.

According to the report, under “Approach 1”, companies that lease equipment would now have to take into account interest and depreciation expenses. As such, they would have to provide higher interest charges at the beginning of a lease and lower charges at the end, a method commonly described as “front-loading.”  Until now, interest charges on equipment in the income statement were typically consistent throughout a lease.
 
The CFO.com report quotes Bill Bosco, president of Leasing 101 and member of the FASB/IASB Lease Project working group saying, “The decision is bad news for most equipment lessees and possibly bad for lessors.” 
 
CFO.com also quotes Kim Lamplough, a partner in the assurance division of Marcum LLP, an accounting and advisory firm, saying, “It will definitely change the timing of charges in the income statement and therefore impact net income.”

Both FASB and IASB will have further discussions on lease accounting at a board meeting on July 19. A revised exposure draft is expected by Q4 of 2012. Most expect few changes to be made to the provisions concerning equipment lessees.

Read the full article on CFO.com.