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Leases – Education session

Date recorded:

The IASB held an education session in preparation for next week's joint meeting. The FASB staff joined the meeting by teleconference. No decisions were made by the Board at this meeting.

Distinguishing between lease accounting approaches

The IASB discussed whether to include certain elements and indicators with the guidance in paragraphs 7-12 of IAS 17 to distinguish between finance and other-than- finance leases. The staff discussed a definition of an other-than-finance lease and proposed to include a specific definition (rather than just the inverse of a finance lease). Most Board members supported an enhanced definition but some felt uncomfortable with the staff's proposed wording. Many Board members also acknowledged that they don't agree with having two types of leases. The Board also discussed the indicators and again there was disagreement about the specific indicators that should be applied to determine the type of lease. Some Board members expressed concern that the indicators will be applied as bright-lines like today.

Lessee accounting – other than finance lease

The IASB discussed the other than finance lease model for lessee accounting with a focus on how the right-of-use asset should be depreciated. Several IASB members expressed concern about the operationality of the model and others questioned the conceptual basis of depreciating an asset using an annuity approach. Some Board members thought that other comprehensive income should be used to address the difficulties in the model. Also, some Board members expressed a view that the cut for determining the type of lease should be based on the nature of the asset (e.g., equipment versus real estate). A majority of IASB members indicated that they would drop the other-than-finance lease approach entirely. These IASB members would favour a single approach for lessee accounting where the profit and loss would be recognised on an accelerated basis consistent with the exposure draft.

Lessor accounting: Finance leases – measurement and presentation

The IASB discussed different aspects of the measurement and presentation of finance leases, with a particular focus on the measurement of the residual value and the presentation of the lease receivable and residual assets. Specifically, the IASB discussed whether the entire asset should be derecognised and whether residual asset should be recognised at a discounted amount and subsequently accreted over the lease term using the rate the lessor charges the lessee. Also, in relation to presentation, the IASB discuss whether a lessor should present the lease receivable and the residual asset together as one amount in the statement of financial position as an investment in leased assets. The lessor should also disclose in the notes to the financial statements, the portion of that investment in leased assets that relates to the residual asset.

Lessor accounting – other than finance lease

The IASB discussed three possible approaches relating to lessor accounting: (1) performance obligation approach with net presentation, (2) retain current operating lease accounting and (3) derecognition approach. The IASB had expressed mixed views with some supporting retaining current operating lease accounting while a slight majority supported the derecognition approach. The FASB staff indicated that the FASB appeared to support either the performance obligation approach or retain current operating lease accounting.

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