ABSTRACT
As the title suggests, this article was prompted by concern over the position taken by the APB regarding the reporting of leases by lessees. The article was further stimulated by a seminar comprising the joint faculties of Duke University and the University of North Carolina, The unanimity of agreement at that seminar that long-term leases should be capitalized prompted the authors to “go public” with a rebuttal to the APB position. Readers should also recall that Graham had been a member of the AICPA Committee on Accounting Procedures (the forerunner to the APB). It should also be noted that the APB was relatively new in the standard-setting arena and had “egg on its face” from issuing APB Opinion #4 (March 1964) which rescinded APB opinion #2 that required the investment tax credit to be treated as a reduction in the cost of the asset, with the benefit spread through lower depreciation over the life of the asset. With the investment tax credit controversy only recently concluded, it is not surprising that the APB chose a popular approach to reporting leases rather than a more theoretically correct approach. Graham & Langenderfer’s concern was that criticism received by the APB in dealing with the investment tax credit would encourage the Board to take a passive role in standard setting by waiting for a more uniform acceptance of a reporting method before issuing a standard (see Addendum to the article for comments about the proper role of the APB).
