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Leases

Date recorded:

Lessor disclosures

The Boards discussed the disclosure requirements for lessors in accordance with the performance obligation model. The staff presented an analysis of proposed disclosures which have been structure in accordance with the Investors Technical Advisory Committee (ITAC) Disclosure Framework, setting out the requirements for the disclosure of the following:

  • the lease disclosure principle;
  • the nature of the lease arrangements distinguishing between the leased asset, lease receivable and performance obligation;
  • the roll-forward;
  • assumptions, uncertaintites and risks; and
  • short-term lease arrangements

The Boards tentatively approved the proposed disclosure requirements subject to the following changes:

  • with regard to contingent rentals, require the disclosure of the description and carrying amount of contingent rentals instead of the accounting policy; and
  • require a level of disaggregation in the roll-forward so that information remains useful to the users.

The staff was also requested to liaise with the Financial Statement Presentation project staff with regards to incorporating a disaggregation principle into the lease disclosure principle, as this principle is broadly based on the principles agreed to in that project.

 

Lessor accounting - Impairment supplement

As a follow-up on the previous day's session on how to deal with impairment by lessors under the performance obligation model, the staff presented a supplement setting out the proposed flowchart and models for determining impairment, as requested by the Boards.

The flowchart summarised the process for assessing impairment as follows:

  • assess whether lease receivable is recoverable in full;
  • if it is, then assess whether the underlying asset is impaired using either option A or B as setout in the previous agenda paper;
  • if the lease receivable is not recoverable in full, determine whether the lessor will/can repossess the underlying asset;
  • if the underlying asset can be repossessed, the lessor may no longer have a performance obligation, in which case the performance obligation is derecognised and lease receivable impaired. The underlying asset is assessed for impairment on a stand-alone basis;
  • if the underlying asset cannot be repossessed, the lease receivable as well as the underlying asset needs to be assessed for impairment using either option A or B as set out in the previous agenda paper.

Again, the Boards had a long discussion as to how impairment should be assessed and accounted for, especially whether either the underlying asset or lease receivable or both should be netted off against the performance obligation.

One Board member remarked that in essence the Boards seem to agree on the same approach; however, there seems to be difficulty in articulating the approach. This Board member recommended to withdraw the proposed flowchart and replace it with something that is more simplistic, setting out a pragmatic yet holistic approach.

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