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A joint project of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) that began in 2006 continues this year. If and/or when it is finalized, the resulting rules will bring changes to lease accounting and could have a large impact on both the debt reported on a company's balance sheet and its earnings before interest, tax, depreciation, and amortization (EBITDA). In general, the change will affect all companies that lease assets (e.g., real estate or equipment), regardless of the type or value of such assets. The change in lease accounting also will affect commercial, financial, and employment-related plans and agreements that use financial ratios or EBITDA measurements, including debt agreements, compensation agreements, and earn-out agreements. Proposed changes would remove the “off balance sheet” nature of operating leases by requiring leases to be booked as liabilities along with offsetting “right-to-use” assets, and have significant balance sheet impact.

FASB and ISAB have set a tentative implementation date of the new rules at April 2011. As they finalize key aspects of the new rule, we’ll keep you informed so that you can plan ahead to ensure compliance and to allow you to plan appropriately for future leases or purchases. If you have any questions on this topic, please contact Paul Atkinson or Sean Spitzer at 404.874.6244.