On March 3, 2026, the Financial Accounting Standards Board (FASB) met with its advisory group, the Private Company Council (PCC), to discuss several potential simplifications to lease accounting for private companies. The PCC serves as the primary advisory body to FASB on private-company accounting matters and helps identify possible alternatives within U.S. GAAP that better address the needs of users of private company financial statements. The PCC's main concerns are the cost and complexity of compliance with accounting rules. During the meeting—available for streaming on the FASB website, with the lease discussion beginning approximately two hours into the session—the council reviewed a range of lessee-related accounting issues and evaluated whether any changes should be recommended. Overall, the topics discussed focused on accounting considerations for lessees and are unlikely to significantly affect lessor sales, structuring, or product offerings, although there could be limited implications for small-ticket leasing and “Equipment as a Service” arrangements. Even in those areas, any benefit to lessors is expected to be minimal due to materiality considerations.

One of the more significant topics considered was whether to adopt an optional single lease classification accounting model that would eliminate the current distinction between operating and finance leases, similar to the approach used by the International Accounting Standards Board (IASB). The council ultimately rejected this idea, noting that lenders and investors rely on the distinction between leases that effectively represent financings and those that are executory contracts. In particular, the classification helps users understand which lease obligations would survive bankruptcy, making the information important for credit analysis.

The PCC also examined whether private companies should be granted a specific scope exception for low-value leases that would allow them to treat such leases as off-balance-sheet operating leases. The council concluded that a formal exception is unnecessary because companies already have the ability to establish internal small-ticket capitalization policies with defined thresholds, provided those thresholds can be supported during the audit process. While this approach does not introduce a new rule, it may slightly encourage the use of small-ticket leasing because leases falling below a company’s threshold may remain off balance sheet.

Another issue discussed involved the accounting for embedded leases within service contracts. The council agreed that additional research is warranted and will continue exploring whether private companies should be required to bifurcate lease components embedded in broader service arrangements. One possible outcome could be allowing companies not to separate these lease components in certain circumstances. Materiality remains the key consideration in this discussion, and if changes are ultimately adopted, they could modestly benefit “Equipment as a Service” models by reducing the need for customers to identify and separately account for the embedded lease component.

The council also reviewed the lease classification criteria, particularly in the context of real estate transactions. Concerns were raised that the current “90 percent test” can result in certain real estate leases—otherwise considered executory contracts—being classified as finance leases. Work on this topic will continue as the council evaluates whether adjustments are warranted to better reflect the economics of such arrangements.

Additional simplification efforts are underway in several other areas. The PCC will continue examining potential changes to the accounting for lease modifications, particularly in cases where modifications are insignificant and the existing rules may be unnecessarily complex. The council is also studying ways to simplify weighted-average lease disclosure requirements and reviewing related-party lease disclosure rules to determine whether they can be streamlined for private companies without reducing the usefulness of the information provided to financial statement users.

Taken together, the council’s discussions indicate that the Private Company Council and the Financial Accounting Standards Board remain focused on identifying targeted simplifications to lease accounting for private companies while preserving information that lenders, investors, and other stakeholders rely on. Although most of the topics discussed are still under review, any eventual changes are expected to primarily affect lessee accounting and are unlikely to materially alter the broader leasing market.