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Tuesday 21 October 2014

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Leases

IASB meeting summaries and observer notes


 IASB / FASB July 2012


 

The IASB and the FASB continued their deliberations of the proposed Leases model. The boards discussed:

  1. Lessee accounting-transition, presentation and disclosure relating to leases for which the lessee would recognise a single lease expense in its statement of comprehensive income.
  2. Lessor receivable and residual approach-how the lessor would measure the underlying asset if the lease terminates or expires.
  3. Interim disclosures-whether the interim reporting Standards should be amended to require specific lease disclosures in a lessee's or lessor's interim financial statements.
  4. The Exposure Draft comment period-the length of the comment period and whether the staff can begin the drafting process.

The IASB also discussed whether it has complied with its due process steps in publishing a revised Exposure Draft.

Lessee-Statement of Financial Position

The boards discussed the presentation in a lessee's statement of financial position for leases for which the lessee recognises a single lease expense (SLE) in its statement of comprehensive income and tentatively decided that a lessee should:

  1. separately present in the statement of financial position, or disclose in the notes to the financial statements, right of use (ROU) assets and liabilities to make lease payments (lease liabilities). If ROU assets and lease liabilities are not separately presented in the statement of financial position, the disclosures should indicate in which line item in the statement of financial position the ROU assets and lease liabilities are included.
  2. present ROU assets under the SLE approach as if the underlying asset were owned.
ROU asset presentation: all IASB and FASB members agreed.

Lease liability presentation: nine IASB members and six FASB members agreed.

Lessee—Statement of Cash Flows

The boards discussed presentation in a lessee's statement of cash flows for leases for which the lessee recognises a single lease expense and tentatively decided that a lessee should:
  1. classify cash paid for lease payments within operating activities. Twelve IASB members and all FASB members agreed.
  2. disclose the ROU asset acquired as a supplemental non cash transaction. All IASB and FASB members agreed.
Lessee Disclosures

The boards discussed lessee disclosures and tentatively decided that a lessee should disclose the following:
  1. a single maturity analysis, which sets out the future undiscounted cash flows relating to all lease liabilities and reconciles to the total lease liability. All IASB and FASB members agreed.
    1. a separate reconciliation of opening and closing balances for:
    2. lease liabilities recognised under the interest and amortisation (I&A) approach; and
    3. lease liabilities recognised under the SLE approach. The reconciliation should include interest or the unwinding of the discount on the lease liability.
Fourteen IASB members and all FASB members agreed.

In addition, the FASB tentatively decided not to bifurcate the disclosure of the maturity of contractual commitments associated with services and other non-lease components between the two lessee accounting approaches. All FASB members agreed.

The IASB tentatively decided to require a lessee to provide a reconciliation of the opening and closing balances of ROU assets under both the I&A approach and the SLE approach, disaggregated by class of underlying asset. The FASB tentatively decided to not require any reconciliation relating to the ROU asset. Eleven IASB members and all FASB members agreed.

The boards tentatively decided to revise the previous tentative decision regarding disclosure of lease costs incurred in the reporting period to only include costs relating to variable lease payments that are not included in the lease liability. Nine IASB members and four FASB members agreed.

Lessee Transition—Measurement of the ROU Asset

The boards discussed transition requirements for leases for which the lessee recognises a single lease expense in its statement of comprehensive income and tentatively decided that a lessee should be permitted to either:
  1. recognise an ROU asset for each outstanding lease, measured at the amount of the related lease liability, adjusted for any uneven lease payments; or
  2. apply a fully retrospective transition approach.
All IASB and FASB members agreed.

Lessor Accounting—Measurement of the Underlying Asset When a Lease Terminates Prematurely

The boards tentatively decided that, when applying the receivable and residual approach, a lessor should measure the underlying asset as the sum of the carrying amounts of the lease receivable (after any impairment) and the net residual asset when re-recognising the underlying asset on termination of the lease before the end of the lease term.

Fourteen IASB members and all FASB members agreed.

Interim Disclosures

The boards tentatively decided not to amend IAS 34 Interim Financial Reporting and Topic 270 Interim Reporting in the FASB Accounting Standards Codification® to require lessee disclosures at interim periods.

All IASB members and five FASB members agreed.

The FASB tentatively decided to amend Topic 270 to require a lessor to provide a table of all lease-related income items in its interim financial statements.

Four FASB members agreed.

The IASB decided to amend IAS 34 to require a lessor to disclose total lease income in its interim financial statements. Additional information about that lease income would be required if there has been a significant change from the end of the last annual reporting period.

Thirteen IASB members agreed.

Exposure Draft Comment Period

The boards tentatively decided that the revised Exposure Draft for leases should have a comment period of 120 days. The FASB plans to address issues specific to non-public entities at a future FASB-only meeting.

Due Process

The IASB confirmed that it has complied with its due process steps in publishing a revised Exposure Draft.

In July 2011, the boards agreed unanimously to re-expose their revised proposals for a common Leases Standard. This is because the revised proposals include significant changes to the proposals that were included in the Leases Exposure Draft (issued 2010) and the boards wish to provide interested parties with an opportunity to comment on the revisions. The main areas of change include the lessee accounting model-specifically, how the lessee recognises lease expense in its statement of comprehensive income for some leases; the lessor accounting model; the accounting for variable lease payments and renewal options; and the definition of a lease.

Next steps

The decisions made at the July 2012 joint meeting complete the IASB's public discussions at this stage of the project, other than sweep issues that may arise during the drafting process. The staff plan to proceed to drafting the revised Exposure Draft for publication in the final quarter of 2012.

Date: 7/17/2012