SFAS 91: New Dilemmas

Statement of Financial Accounting Standards (SFAS) 91 established new rules by which lenders will account for nonrefundable fees. The Statement's main thrust is to eliminate the recognizing of such fees as revenues at or prior to the inception of the loan, by requiring that they be recognized over the life of the loan as an adjustment to yield. Two dilemmas created by the originally issued SFAS 91 are illustrated through a simple lease example. Then, 2 alternatives that both avoid these dilemmas and accomplish the Financial Accounting Standards Board's (FASB) purpose in issuing the SFAS are offered. Even more important than these easily remedied mechanical difficulties is the lesson to be learned about participation in the FASB's established due process procedures in the standard-setting process. Since the problems of SFAS 91 in the example were avoidable, the exercise indicates a need for all of the accounting community to take more seriously the need to review and respond to the exposure drafts and discussion memoranda as they are issued.