Highlights from the 2022 Lease & Finance Accountants Conference

Joint opening session of the Lease & Finance Accountants Conference and Operations & Technology Conference in New Orleans.

The ELFA Lease & Finance Accountants Conference returned to a live, in-person event in September. Since the late 2000’s, the conference has been dominated by the major changes in accounting that were either under discussion, recently adopted or being implemented when the conference was held. Leases, revenue recognition and CECL were major topics during those years. The 2022 conference agenda reflected a more stable but still challenging accounting environment as these standards have now been adopted by most companies.

In total there were 27 sessions at this year’s conference, including joint sessions with the Operations & Technology Conference, which was co-located in New Orleans on Sept. 12-14. The subject matter of the sessions included current issues in lease accounting, business trends impacting lessors and the future of investor reporting.

What is on the horizon?

There were two sessions at the conference that addressed the future of accounting and reporting. The first was the presentation by Financial Accounting Standards Board member Gary Buesser. Among the topics Mr. Buesser covered were:

• The Board’s agenda consultation project that led to: redefined projects on income tax disclosures and income statement expense breakdowns; and new projects on the accounting for digital assets, software costs and environmental credit programs;
• Recent developments related to the Leases standard, including the post implementation review process and the move to address questions arising from leases with related parties; and
• The accounting for investments in tax credit structures, which is essentially a limited expansion of the level yield amortization model that exists currently for low-income housing credit investments.

The second session dealing with the future of reporting was the presentation by Max La Merle, Staff member of the International Sustainability Standards Board (ISSB). The ISSB is part of the Environmental, Social and Governance (ESG) system. It was recently formed to develop a uniform set of sustainability reporting standards. The impact on U.S. companies of the ISSB’s efforts at this time is indirect, but it is likely to grow with time. During the session Mr. La Merle covered:

• The formation of the ISSB under the umbrella of the IFRS Foundation;
• The scope of work they are undertaking; and
• The recent exposure drafts on general requirements for sustainability and climate disclosures.

The ISSB’s two exposure drafts focus on the information needs of investors and the potential impact of sustainability risks on enterprise value. It was noted that ELFA had submitted a comment letter to the ISSB on the exposure drafts. Given our input, the process the ISSB will go through to collect the comments for review was discussed, including the use of machine reading technology by the staff to wade through the large number of comments the ISSB has received.

While the work of the ISSB may impact ELFA members in the future, the “E” in ESG is already impacting leasing and lease accounting. This timely subject was covered in a separate session. If a company takes an action to change the nature of its leasing activities in order to improve how investors judge its environmental footprint, questions may arise related to whether the new arrangement is or contains a lease or whether lease reclassification, modification, or impairment event has occurred. This topic was also the subject of a recent Financial Watch article in the October issue of this publication.

What are some of today’s issues?

The questions companies are addressing today are varied and at the conference the following subjects were covered:

• The differences between leases and service arrangements: The question of which transactions are included in lease accounting and which are services is an important scope question for both lessees and lessors. For a lessor, if a transaction contains a lease and a service component the transaction is subject to two sets of accounting requirements: one for leases and one for revenue recognition. Some lessor/service providers would prefer to be under one accounting model and consequently seek to have a transaction be wholly within one standard. This matter was discussed at length during the session.
• The accounting for sale leasebacks and build-to-suit transactions: ASC 842 brought significant changes to sale leaseback accounting. Whether a build-to-suit transaction is simply a lease or whether it is a sale leaseback transaction is an important question for lessors. The session worked through examples of control and other related issues, such as the significant impact of seller-lessee purchase options on the accounting for sale leasebacks.
• Adoption of the Leases standard and Day 2 issues: For many companies, the Leases standard is not fully in the rearview mirror, and the last wave of companies—private companies—are in the process of adopting ASC 842. This session walked through technical and operational difficulties during the implementation of the standard related to lease identification, discount rate, lease term and presentation and disclosure requirements.
• Other current issues for lessors: A number of questions came up in this session, including the impact of ASU 2021-05 on the accounting for leases with variable lease payments, and the accounting for interim rent payments in failed sale leasebacks. The question of the accounting for equipment finance agreements (EFAs) was also covered. EFAs are a common product for finance companies to offer. The terms of EFAs need to be analyzed in order to determine whether they fit into lease or loan accounting.

What else was covered?

In addition to these topics, there were sessions at the conference that addressed:

• Accounting for loan and lease credit losses (CECL),
• How the accounting for a target company’s existing leases is impacted by an acquisition,
• Capital market developments and funding considerations for finance and leasing companies,
• How business trends, including labor shortages, supply chain issues and inflation have been impacting finance companies,
• Current developments related to Federal income taxes,
• Receivables and payables processing trends and developments, and
• Lease and loan pricing theory and practice, at both the introductory and advanced levels.

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 Conference Resource Center (free to attendees and for a fee for non-attendees).