IFRS 10 — Single-asset, single-lessee vehicles and the assessment of control

Date recorded:

The Senior Technical Manager said that the Committee had discussed two submissions in the November 2014 meeting. Both submissions were based on examples where a structured entity had been created to lease a single asset to a single lessee. One example was based on an operating lease with the question whether the lessee should consolidate whilst the other example was based on a finance lease with the question whether the lender/lessor should consolidate. The Committee had decided not to take the issue onto its agenda as the principles established in IFRS 10 would enable a determination to be made when all the required information was known. Three comment letters had been received on the issue. Whilst one respondent agreed with the tentative agenda decision, another respondent believed that the issue was common in their jurisdiction and it should therefore be taken onto the agenda. The third respondent also suggested taking the item onto the IFRS Interpretations Committee’s agenda to consider the effect the purpose and design might have on the assessment of power. Some of the points had been discussed by the Committee in the November 2014 meeting. They included having the right to use an asset for a period of time in and of itself would not be expected to give a lessee decision making rights that would provide power over the lessor. However, the Committee had noted that there could be some exceptions to those circumstances. Many of the Committee members had been uncomfortable with using the risk and rewards assessment of IAS 17 to find indicators for control. The staff concluded that the arguments of the third respondents were a continuation of the Committee’s discussion and should therefore not affect the original conclusion. Consequently, the staff recommended that the agenda decision should be finalised without editorial changes.

One Committee member said that the proposed agenda decision was unclear as to whether the lease itself was a relevant activity of the entity and whether it should therefore be considered in the consolidation assessment. One view was that the leased asset absorbed the variability and the lessee should therefore consolidate which would overturn the IAS 17 assessment. The other view was that leasing was not a relevant activity and the variability was absorbed by the note holders. The Senior Technical Manager replied that the Committee supported the latter view at the November 2014 meeting. However, the agenda decision omitted this fact as there were instances where an entity was controlled for reasons other than being a lessee.

One Committee member disagreed with the proposed agenda decision as the issue was widespread which not only concerned lease agreements but also lending activities, sale and repurchase agreements and collateral agreements, for example. A fellow Committee member agreed and said that in his view there was diversity in practice. He said that he would prefer to include some of the discussions held by the Committee into the agenda decision even though the Committee had not reached a conclusion on those. He said that he would prefer discussing those issues further if this was necessary to include them in the agenda decision. Several Committee members agreed with that. Others believed that it was a very specific issue and the agenda decision should therefore be finalised as the clarification of bits and pieces of IFRS 10 would not be helpful.

The Chairman said that diversity in practice to him was no argument for or against including additional guidance in the agenda decision. He asked who was in favour of removing the reference to diversity in practice from the agenda decision. All members voted in favour of that.

He called a vote on expanding the agenda decision for the points that had been discussed in the November 2014 meeting. Seven of the thirteen Committee members were in favour. The Chairman concluded that these issues would be discussed at the next meeting.

An observing IASB member referred to the agenda paper where it was stated that all rights needed to be considered. He proposed to change that reference to ‘rights and obligations’. The Senior Technical Manager said that she agreed with obligations to be considered for an overall assessment but the reference focused on the assessment of power where obligations were not included.

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