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IASB meeting summaries and observer notes


 IASB / FASB February 2012


 

 

The IASB and the FASB discussed lessee accounting and, in particular, different methods of amortising the right-of-use asset. They also discussed any consequences that a change to the lessee accounting model would have on the tentative decisions for lessor accounting. The boards were not asked to make any decisions.

More specifically, the boards discussed the following two approaches to amortising the right-of-use asset:

  1. The underlying asset approach described in agenda paper 2C/227: under this approach, the lessee would amortise the right-of-use asset based on the estimated consumption of the underlying leased asset over the lease term. Consequently, the higher the consumption rate, the more the income statement effects would resemble those that would arise from purchasing the underlying asset and financing it separately. The lower the rate of consumption, the more the income statement effects would resemble the rental expense pattern under current operating lease accounting. Although the boards did not make any formal decision, the IASB indicated an initial leaning toward this approach, if it is confirmed that it is operational and useful.
  2. The interest-based amortisation approach described in agenda paper 2C/227: under this approach, the lessee would amortise the right-of-use asset on a systematic basis that reflects the pattern of consumption of expected future economic benefits (this is consistent with the 2010 Leases exposure draft) for those leases for which substantially all of the risks and rewards of the underlying leased asset have been transferred to the lessee. For leases that do not transfer substantially all of the risks and rewards of the underlying leased asset, the lessee would use an amortisation approach that would result in recognising total lease expense in a pattern that would typically resemble the rental expense pattern under current operating lease accounting. Although the boards did not make any formal decision, the FASB indicated an initial leaning toward this approach.

The boards directed the staff to undertake further outreach and research on those two approaches before they reach a tentative decision on which approach to propose in the re-exposure document.

Date: 2/28/2012