Maintenance and consistent application

Date recorded:

Lease Liability in a Sale and Leaseback—Project Direction (Agenda Paper 12A)

In November 2020, the Board published Exposure Draft ED/2020/4 Lease Liability in a Sale and Leaseback (Proposed amendments to IFRS 16).

At its May 2021 meeting, the Board discussed a summary of feedback on the ED. The Board did not make any decisions at that meeting, but members did provide their initials thoughts on the feedback.

In September 2021, the staff presented its analysis to the IFRS Interpretations Committee (Committee) preliminary views on how to proceed on the project, having considered respondents’ comments on the Exposure Draft. The staff developed their analysis and recommendations in the paper considering feedback from Committee members as well as in comment letters and from other meetings.

The purpose of this meeting was to provide the Board with the staff’s analysis and recommendations on how to proceed on the project and to ask the Board whether it agrees with the staff recommendations.

Staff recommendation

Based on the analysis in the paper, the staff recommended that the Board retains the following proposals in the ED:

  • To clarify that the leaseback liability is a liability to which IFRS 16 applies
  • To not change the initial measurement requirements in paragraph 100(a) of IFRS 16 for the right-of-use asset and the gain or loss arising from the sale and leaseback
  • To clarify that a seller-lessee subsequently measures the right-of-use asset arising from the leaseback applying paragraphs 29-35 of IFRS 16
  • To include an illustrative example of a sale and leaseback transaction with variable payments

The staff recommend that the Board deviates from the proposals in the ED as follows:

  • Not prescribe how, at the commencement date, a seller-lessee determines the proportion of the previous carrying amount of the asset that relates to the right of use the seller-lessee retains
  • Require the seller-lessee to subsequently measure the leaseback liability applying paragraphs 36-46 of IFRS 16
  • Specify, for the purposes of applying paragraphs 36-46 of IFRS 16, the term ‘lease payments’ may not be as defined in Appendix A to IFRS 16. Instead, the seller-lessee would apply the term ‘lease payments’ or ‘revised lease payments’ in such a manner that it does not recognise any amount of the gain or loss that relates to the right of use retained to the extent that the right of use is retained

Board discussion

Board members acknowledged the concern raised by respondents to the ED as to whether it was appropriate to constrain the gain or loss resulting from a sale and leaseback transaction. However, to address those comments the Board would have to undertake standard-setting that goes beyond a narrow-scope amendment. The proposed changes to IFRS 16 are pragmatic and much needed. It was conceded though that the drafting of the amendment should be looked at to see if some of the concerns could be addressed by a change of words. Nonetheless, Board members suggested to finalise the proposals and look at the wider issue of gain or loss recognition during the post-implementation review of IFRS 16.

Board decision

10 of the 11 Board members present supported the staff recommendation.

Economic Benefits from Use of a Windfarm (IFRS 16)—Finalisation of Agenda Decision (Agenda Paper 12B)

At its November 2021 meeting, the Committee decided not to add a standard-setting project to the work plan in response to a submission on IFRS 16 on economic benefits from use of a windfarm. The Committee instead decided to finalise the agenda decision.

The purpose of this meeting was to ask Board members whether they object to the agenda decision.

Board decision

No Board member objected to the agenda decision. There was no discussion on this topic.

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