December 8, 2009
FASB/IASB to Focus on Alternative Accounting for Leases by Lessors of Investment Property
On December 4, 2009, the Financial Accounting Standards Board (FASB)/International Accounting Standards Board (IASB) (FASB/IASB or Boards) staff issued a paper that discusses alternatives for accounting for leases by lessors of investment property and provides the staff's recommendations. The recommendations integrate standards for reporting "investment property" (i.e. real estate held to earn rentals or for capital appreciation or both) in the statement of financial position, as well as reporting rental income in the statement of comprehensive income.
Three alternative approaches are set forth in the staff paper:
Under Approach A, investment property would be reported in the balance sheet consistent with existing standards. In addition, the lessor would record a lease receivable and a performance obligation equal to the present value of rents to be received under the lease over the term of the lease. Revenue would be recognized over the lease term as interest income and amortization of the performance obligation.
Under Approach B, the investment property would be carried in the balance sheet at either depreciated cost or fair value – a choice similar to that provided for in International Accounting Standards No. 40, Investment Property. If the cost approach is chosen, the estimated fair value of investment property would be reported in the notes to the financial statements. Under this approach, the lessor would not record a separate lease receivable or a performance obligation as currently proposed under the lease accounting project. In addition, lessors would recognize lease income over the lease term – rather than interest income and amortization of the performance obligation generally required under the proposed standard.
Approach C is similar to Approach B except that it would require that the investment property be reported at fair value in the balance sheet.
Significantly, the staff paper rejects Approach A and recommends that the Boards adopt either Approach B or C. Approach B is consistent with positions advocated by NAREIT and its global partners.
Staff paper 4E, Lessor Accounting – Investment Property, is available HERE. These recommendations will be discussed at the December 9, 2009 FASB meeting and the December 16, 2009 joint FASB/IASB meeting. George Yungmann, NAREIT's Sr. VP, Financial Standards will attend both of these meetings.
FASB Ratifies EITF Consensus on Reporting Elective Stock/Cash Dividends
On December 2, 2009, the FASB ratified the Emerging Issues Task Force (ETIF) consensus reached on November 19 that calls for the stock portion of an elective stock/cash dividend to be reported as a stock issuance. As a result of this final decision, companies will be required to report the stock portion of the dividends prospectively in per share amounts under the FASB's current earnings per share guidance. This requirement will be effective for interim and annual periods ending on or after December 15, 2009 and will be applied on a retrospective basis.
The background and discussion with respect to the project is available HERE.
Boards to Discuss Staff Recommendations for Reporting Discontinued Operations
The Boards' staff is recommending the following converged definition of a discontinued operation, which we believe would reduce considerably the number of dispositions currently reported as discontinued operations under U. S. GAAP:
A discontinued operation is a component that either has been disposed, or is classified as held for sale and:
(a) represents a separate major line of business or geographical area of operations;
(b) is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or
(c) is a business that meets the criteria to be classified as held for sale on acquisition.
The staff recommendations include required disclosures.
These recommendations are consistent with positions advocated for several years by NAREIT and its global partners.
Staff paper 9, Discontinued Operations – Definition and Disclosures, is available HERE. These recommendations will be discussed at the December 16, 2009 joint FASB/IASB meeting.