The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) are currently making progress in their efforts to converge their rules for the accounting of leases, according to George Yungmann, NAREIT’s senior vice president for financial standards.
Yungmann covered some of the latest developments in accounting and financial reporting in a video interview with REIT.com at NAREIT’s headquarters in Washington. FASB and IASB have revised their standards regarding lessors and lessees, Yungmann said.
“This has been in response to constituents’ views that there’s more than one type of lease and that each of those types of leases should be reported differently to provide useful information to financial statement users—investors, analysts, credit rating agencies and so on,” Yungmann said.
The boards have concluded that there are two types of leases, Yungmann noted.
“Both types would require that lessess report a liability a liability on their balance sheet for their obligations under a lease, but they would change the income and expense recognition that was proposed a year ago,” Yungmann said.
One type of lease covers property, according to Yungmann. This includes leases on buildings and land. The boards’ tentative conclusion holds that both lessors and lessees would recognize income and expense similar to the way that currently do so on a straight-line basis. The boards are expected a release a re-exposure draft of the standard in the spring of 2013.
Yungmann also discussed FASB’s project to develop a standard for accounting and reporting by investment companies.
“The FASB has concluded that equity REITs should continue to be exempted from the standard,” Yungmann said. “The FASB has also concluded that mortgage REITs would not be explicitly exempted. They would need to consider the criteria to determine whether or not they need to follow the investment company standard or not.”
NAREIT is still continuing to provide input to the FASB on the issue and requested a meeting between the board’s staff and representatives of NAREIT’s mortgage REIT members “to ensure that the FASB understands the business model of mortgage REITs,” according to Yungmann.
In a separate video interview with REIT.com, Yungmann discussed the widespread use of NAREIT's definition of FFO in financial reporting.