AFP has issued a joint comment letter, along with 21 other associations, to the Financial Accounting Standards Board and the International Accounting Standards Board, voicing concerns over the Proposed Accounting Standards Update on Leases. Though AFP recognizes the importance of accurate and transparent financial reporting based on high-quality accounting standards, the association believes both the FASB and the IASB must review and resolve differences on certain issues.
AFP is particularly concerned with the FASB and IASB reversing their decision on lessees’ accounting for costs of former operating leases. This stems from the standard setters’ conclusion that there should be a single accounting approach for all leases. This approach does not address capitalized executory contracts where the rights and obligations are linked and subject to continued performance under the contract. Failing to address them properly could have negative effects on businesses and their investors. AFP requests that this issue be revisited, possibly through a public roundtable.
AFP also wishes to ensure that the lease accounting proposal goes through an appropriate vetting process. Last year, FASB and IASB reversed decisions that had been supported by preparers and users of financial statements, without public input. AFP values transparency and due process and believes that all stakeholders should be given the opportunity to express opinions on how to approval proposals.
The impact of a change in financial reporting requirements could have unintended consequences on business decisions, hurt the economy, and cast doubts upon future standard setting activities. AFP believes that an economic impact study should be performed before any final action is taken on the proposal. AFP also recommends comprehensive field testing to identify any unintended consequences. The Securities and Exchange Commission’s Advisory Committee on Improvements to Financial Reporting (CIFiR) has also proposed these suggestions, as well as others.
Ultimately, AFP approves of the FASB and IASB’s efforts. However, the association believes that more time and evaluation is required to ensure an effective system and resolve any remaining issues.AFP’s comment letter can be read in its entirety here.