Leases may move to balance sheets in proposed rule

* IASB, FASB propose new lease accounting rules

* Proposal open for comment until Dec. 15, 2010

* FASB member anticipates final rule in June 2011

By Emily Chasan

NEW YORK, Aug 17 (Reuters) - U.S. and international accounting rule makers proposed an overhaul of lease accounting that could bring some $1.2 trillion of leased assets onto corporate balance sheets.

The Financial Accounting Standards Board, which writes U.S. accounting rules, and the International Accounting Standards Board, which sets standards for over 100 countries, released a joint proposal on Tuesday, to increase the amount of information companies give to investors about their leases.

Traditionally, accounting rules have given companies a lot of leeway in how they record leases for assets ranging from store locations and restaurant equipment to airplanes and machinery. As a result, only certain types of leases appear on the balance sheet, while a majority of a company's leases can often be kept off the balance sheet and hidden from an investor's view.

Under the proposed changes, companies that lease their assets, would now have to put on the balance sheet a liability for future payments and an asset representing the "right to use" the leased asset.

"These would represent fairly significant changes," FASB member Leslie Seidman said in an interview with Reuters. "For some this is the first time they will be putting anything on the balance sheets and for some it is just a tweak of the accounts."

Under the changes, short lease terms would likely appear smaller on balance sheets, while long-term leases would show up as larger.

Among the other changes, the boards proposed some complex leases with variable options would require companies to make estimates of their payments, and lessors also would to change their accounting for leases they make to keep everything consistent.

IASB Chairman Sir David Tweedie said in a statement that the billions of dollars worth of leases that fail to appear on balance sheets under current rules were "giving a false impression" to investors.

In some industries, investors have complained that leases are similar to financings and it has been difficult to compare companies that use leases versus those that use financing for similar transactions.

"We're of the understanding that this area of accounting is something that investors have been attempting to estimate on their own for years," Seidman said, adding that the boards are also proposing some new disclosure requirements for companies.

The lease accounting project has been one of the key areas where the boards are working to align U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards.

The proposal will be open for public comment until Dec. 15, 2010. Seidman said she would expect a final rule around June 30, 2011, which is the date the FASB and IASB have targeted for completion on many of their key projects to converge accounting rules.

The standard would likely not take effect for several years, Seidman said. (Reporting by Emily Chasan; editing by Carol Bishopric)