1. US Equipment Leasing Industry Perspective on the Lease Accounting Project 2007 Leaseurope Business Forum on Lease Accounting Brussels, Belgium Bill Bosco, ELFA Accounting Committee Member wbleasing101@aol.com

2. Agenda ELFA Position Project Issues Suggested Framework ELFA Activities Q&A

3. ELFA Position The ELFA supports the concept that material leases should be capitalized –Consistent with conceptual framework and new asset and liability definitions The new standard must reflect the economic, commercial, tax and legal aspects of the transaction The new standard must not create more burden for preparers than meaningful financial reporting for users

4. Reflecting Reality Ownership vs. Right-of Use –Is the substance (legal/tax) of the transaction a sale or loan? –Is the substance (legal/tax) of the transaction a lease? –What are the intentions of the lessee Return, renew, or buy? Are there tax benefits that affect the lessor’s profits?

5. Cost/Benefit Approximately 70% (& growing) of off-balance sheet minimum lease payments result from a low volume of real estate leases and long term large ticket equipment leases Less than 30% (& stable) are from high volume small ticket off-balance sheet equipment true leases with terms of 5 years or less where: –Lessees return the asset and replace with new lease –Lessee not tax or legal owner of leased asset –Each leased item may have unique PV

6. Project Issues - Content New rules should reflect uniqueness of leases – not just fit into existing PPE & liability accounting rules Focus should not be on equipment leases Should not reject risks & rewards classification concepts in current accounting model Lessor tax benefits should be included in lessor income recognition Need positive statement that immaterial leases are accounted for as operating leases

7. Project Issues - Process Better use of working group/leasing trade associations May need to look at more lease types than a “simple equipment lease” or look at lease terms Should do market studies of lease volumes, types, legal and tax regimes Should field test approaches with users to see cost/benefit

8. Suggested Framework - Lessee Lessee Accounting –Classify leases as financings (sale/loans) or leases –Financings accounted for as a purchased asset and a loan using implicit rate in the lease as the discount/interest rate –Immaterial true leases accounted for as operating leases –Material lease accounting: Asset and liability linked as to amortization and fair value accounting Right-of-use expense is the rent (straight lined)

9. Suggested Framework - Lessor Lessor Accounting –Operating lease accounting for short term true leases and fractional share leases –Direct finance lease accounting for medium/long term true leases and financings –Sales-type lease accounting where a gross profit exists –Leveraged lease accounting for true leases with significant non-recourse debt

10. ELFA Activities Work with worldwide trade associations Keep members and customers informed Positive stance towards change Make it known that we are a resource Attend all public meetings Meet with FASB and staff on issues Work with FASB staff to provide information Comment formally on exposure drafts and public requests for comment

11. ELFA View - Lease Accounting Project Questions? Bill Bosco, ELFA Accounting Committee wbleasing101@aol.com