Trucking among industries covered by latest FASB lease accounting standards

Feb. 28, 2016

The Financial Accounting Standards Board (FASB) released their long-awaited rule changes for lease accounting standards on February 25. This final rule culminates years of work by the Truck Renting and Leasing Association (TRALA) and other affected groups that have worked with the FASB to make sure that the final rules kept the leasing of trucks as a beneficial option for lessees.

TRALA officials say they believe that the final rules released by the FASB, though not perfect, do maintain the strong benefits for companies that lease trucks rather than purchase new trucks. TRALA has made available a white paper to explain the changes in the standards.

Since this rule was proposed, TRALA has worked to educate members of the FASB on the unique nature of the truck renting and leasing industry, and how their original proposal could negatively harm the industry. Initially, TRALA was concerned with FASB's plan to front-load leases with interest and other costs like a traditional home mortgage. Additionally, there were concerns that new standards could be overly complex and that lease payments would be considered debt thus making leasing a vehicle less competitive with financing a vehicle.

The final rule from the FASB will require lessees to bring the cost of an operating lease onto their balance sheet for the first time, however these lease payments will not be considered as debt but rather a liability which is beneficial for lessees. The FASB also accepted TRALA's request to have straight-line expensing which is more indicative of the actual lease from an accounting perspective. Additionally, an independent analysis on the effects of these new rules has found that the cost of leasing a truck versus financing a new truck will remain advantageous under the new accounting standards.

The requirements under this new rule are effective for public companies for the fiscal year beginning after December 15, 2018. For all other entities the new rules go into effect for the fiscal year following December 15, 2019.