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EFRAG suggests public review of the forthcoming standard on leases

  • EFRAG (European Financial Reporting Advisory Group) (dk green) Image

16 Jun 2015

European Financial Reporting Advisory Group (EFRAG) has sent a letter to the IASB requesting a public fatal flaw review of the forthcoming leases standard to ensure that constituents understand the requirements and how to apply them.

In September 2014, EFRAG had called for amending the IASB’s consultation process by adding a public fatal flaw review prior to finalisation of a standard or a major amendment to a standard. This time EFRAG is solely suggesting to have this public fatal flaw for the leases standard. The IASB at times uses the tool of fatal flaw reviews, and EFRAG feels such a review is warranted this time as “ the IASB has put significant redrafting effort into the final standard, especially with respect to the definition, since the last public consultation”. As a consequence of the substantial changes to the definition, EFRAG fears that preparers may be confused and not necessarily understand the scope of the new requirements. EFRAG argues:

[U]nless entities are able to properly understand and apply the definition of a lease and the other requirements in the standard, there will be a significant and wasteful use of time debating possible interpretations, which will lead to a real risk of divergent application.

Please click to access the letter on the EFRAG website.

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