ACCA does not support new leasing standard

  • ACCA (UK Association of Chartered Certified Accountants) (lt green) Image

13 Sep, 2013

The Association of Chartered Certified Accountants (ACCA) has published their response to the IASB’s exposure draft ED/2013/6 Leases (“the ED”). ACCA do not support the right-of-use (RoU) model proposed by the ED and call on the IASB to “abandon attempts to incorporate the RoU methodology in a new standard on leasing”.

For lessees, the Exposure Draft ED/2013/6 Leases proposes the recognition of a liability and a right-of-use asset for all leases with a profit or loss impact dependent on the classification of a lease. The lessor model in the ED is similar to current lease accounting with some nuances for the recognition of revenue and discounting of the residual asset. The proposals are only applicable for leases with a lease term of more than 12 months. 

There are a number of areas of the RoU model that the ACCA do not support.  Their view is that “the proposals run some of the risks of a method based on probabilities” and this could mean the recognition of assets and liabilities that do not meet the Conceptual Framework definitions.  Additionally they note that the proposed changes “will result in additional complexity for preparers especially those who currently hold a large number of operating leases”.  

The ACCA comment that there is a “lack of guidance” in the ED and the Basis for Conclusions as to what constitutes an “insignificant portion of economic benefits embedded in the underlying asset” when determining the recognition, measurement and presentation of expenses and cash flows arising from a lease.  They comment that this could lead to “uncertainty in practice”, “higher compliance costs” and “inconsistency between reporting entities”. 

Furthermore the ACCA are of the view that it would not be "appropriate" for all leases to be shown in the Statement of Financial Position and question why intangible assets are excluded from the scope of the proposed standard. 

They instead favour keeping the existing IAS 17 model with certain amendments.  These would include additional disclosures and “possibly a lower threshold for the recognition of finance leases”.  The ACCA views the current IAS 17 model as “much simpler and easier-to-understand” and feel that the IASB will need to issue another ED to gather views as to whether an approach based upon an amendment to IAS 17 would be favourable.  

The detailed responses to the questions raised in the ED can be found here and the press release here (both links to ACCA website).  

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.