Reaction from truck equipment lessors and freight carriers mostly was positive.
The standard is expected to be formally published in early 2016 and will be effective for fiscal years beginning after Dec. 15, 2018, for public companies and a year later for privately owned companies.
FASB began a review of lease accounting in 2006 in response to criticism from the U.S. Securities and Exchange Commission that the use of off-balance sheet financing did not give investors an accurate picture of how much a firm owes, since many companies use leasing as a way to acquire assets.
“We believe the new standard will provide investors, lenders and other users of financial statements a more accurate picture of the long-term financial obligations of companies to which they provide capital,” FASB Chairman Russell Golden said.
Under the new standard, leases used to acquire trucks and trailers must be shown on the balance sheet as a liability that is written down over time as a “right-to-use” asset, said Mark Scoles, a partner at the Grant Thornton firm in Chicago.
While the change will alter financial statements “very dramatically,” Scoles said that it is unlikely to have a negative impact on the ability of firms to secure financing.
Approximately two-thirds of truck owners in the United States lease their vehicles, according to Todd Amen, president of ATBS, an accounting services company for owner-operators based in Lakewood, Colorado.
For companies with full-service truck lease arrangements, the new standard will require separate accounting for services, such as maintenance and fuel, and rental payments for the vehicle.
“The final rules should not significantly impact the lease vs. buy dynamic,” said Jake Jacoby, president of the Truck Renting and Leasing Association in Alexandria, Virginia. “Having to secure a loan and put up significant capital to purchase trucks and equipment are still reasons to lease.”
Jacoby said the new accounting rules had been a source of trepidation, but the fact that implementation still is a few years away “should give lessors and lessees time to update their systems and talk directly to one another, ensuring as smooth a transition as possible.”
Also expressing satisfaction with FASB’s new standard for lease accounting is William Sutton, president of the Equipment Leasing and Finance Association in Washington.
“The primary reasons to lease will remain intact under the new rules,” Sutton said, “from maintaining cash flow, to preserving capital, to obtaining flexible financial solutions to avoiding obsolescence.”
ELFA represents financial service companies and manufacturers engaged in financing capital goods, including producers of trucks and trailers, health care equipment, and computers and software.
A report released in October by the Equipment Leasing & Finance Foundation projects the total equipment finance market to reach $1.046 trillion in 2015 compared with $946 billion in 2014.
“There is cautious optimism among industry participants as the equipment finance industry seems to be entering a new phase of solid albeit slower growth,” said Richard Gumbrecht, chairman of the foundation and chief growth officer of EverBank Commercial Finance in Parsippany, New Jersey.