As the year draws near its end, construction company owners and their fiduciaries should keep a close eye on an accounting change recently proposed by the Financial Accounting Standards Board ( or FASB). Depending on the industry’s response this year, the change could go into effect in 2011.
The focus of the change is leasing, including equipment leasing. If enacted it likely will have a sizeable impact on construction companies, and here’s why: Under current standards, leases are split into two categories: capital leases, which must be reported on balance sheets, and operating leases, which are allowed to stay off the books if worded correctly in contracts. FASB believes this creates an understatement of assets and liabilities, and allows companies to structure leases to achieve goals such as higher profits, while making it harder to compare results of firms that treat leases in different ways.