Accounting for Change

Takeaways from the Lease and Finance Accountants Conference

Educational sessions tackled hot topics.

What are the critical accounting issues facing the equipment finance industry? The 2019 Lease and Finance Accountants Conference, held in Chicago in September, tackled a number of important new developments. With the adoption this year of the new leases standard, ASC 842, by most public companies, the conference’s focus shifted from issues related to the initial application of the standard to the issues and questions that have arisen as lessors and lessees have begun to account for leases within the new model.

In total there were 20 general and breakout sessions covering such topics as:

• Current and emerging lessor topics,
• ASC 842 adoption lessons learned,
• Sales of leases and loans,
• Acquisition accounting,
• Lease accounting data requirements,
• Sale leaseback accounting,
• Leases of real estate and
• Operationalizing the IFRS leases standard.

While the sessions often focused on technical accounting, the topics covered were connected to matters of current interest to the membership. For example, the accounting determination of whether a transaction is a lease or a service is timely as the industry continues to consider managed service arrangements with customers. The session “A Lease or Not a Lease” provided useful information on the distinction between leases and services and the consequences of the conclusion under the new standard.

In addition to lease accounting and ASC 842, the new credit loss standard, ASC 326, was also the subject of several sessions, including a joint session with the ELFA Operations and Technology Conference. ASC 326 replaces today’s incurred loss model for loans and leases with a lifetime credit loss approach, which is known as the Current Expected Credit Loss or CECL model. Application of CECL is very dependent upon data, and companies have at times struggled to assemble the data. Also, CECL is a cross functional exercise and it requires companies to involve accounting, risk management, regulatory, operations and technology functions. Given the breadth of its impact, CECL will likely be the subject of further review in this magazine's Financial Watch column in the coming year.

A recurring feature of the conference is the opportunity it provides attendees to hear directly from the accounting standards setters. This year Board members from both the Financial Accounting Standards Board and International Accounting Standards Board participated on panels. Marsha Hunt of the FASB reviewed the Board’s activities and participated in a discussion of several leasing questions that have arisen in the past few months. One of the FASB’s recent actions that was covered was the matter of reference rate reform. The sunsetting of LIBOR and similar rates around the world leads to a series of accounting challenges related to the accounting for contract modifications and hedge accounting when the hedging derivative and/or the hedged loan or lease is modified for the change in reference rate away from LIBOR. The FASB developed a framework for dealing with these changes. This is an emerging issue for the membership that extends beyond the accounting for the change. This topic will be revisited as companies prepare for the end of interbank offer rates.

The presentation by IASB Board member Gary Kabureck included a review of how adoption of the IFRS leases standard has proceeded. He noted in his presentation that the IASB received relatively few questions on the standard, and he reported that adoption of IFRS 16 appears to have gone smoothly. While IFRS 16 has been adopted by the large, public companies in a number of countries, the lease standard has not yet been brought into the separate and distinct accounting model of IFRS for small and medium sized enterprises or SME’s. The process of incorporating IFRS 16 into IFRS for SME’s will take a number of years.

During the Q&A, Kabureck was asked to reflect on how ELFA helped or influenced the Boards during their work on the leases standards. He noted ELFA was helpful to the Boards. We provided useful information on the equipment leasing market and lease accounting, and he praised our efforts to work constructively with the Boards. The consistency of our message was mentioned: We accepted that leases would be on balance sheet for lessees, but we also emphasized that the standard needed to reflect the economics of leasing and not be so complex as to make it overly hard for lessees to apply.

20 companies exhibited at the joint Accounting and Technology Exhibition.

If you missed the conference and wish to learn more about the topics that were covered, copies of the session handouts and audio recordings are available on ELFA’s website at www.elfaonline.org/events/conference-resource-center. Save the date: The 2020 Lease and Finance Accountants Conference will be held Sept. 14–16 in New Orleans.  
John Bober is Managing Member of IXL Lease Advisory Services, LLC and is the Chair of the ELFA Financial Accounting Committee.