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Journal entry — FASB and IASB continue redeliberations of the leases project

Published on: Jun 17, 2011

At their joint meetings this week, the FASB and IASB (the “boards”) continued redeliberating their leases exposure draft (ED). The boards continued to discuss lessor accounting and are exploring the possibility of a single lessor model under which all lessors would recognize a lease receivable and a residual asset for all leases. No decisions were made, however, and the boards will continue to discuss potential lessor models at future meetings.

Editor’s Note: A move to a single lessor accounting model would not be favorable for companies that prefer current operating lease accounting. In addition, under this model, many real estate lessors (and similar lessors, such as lessors of cell towers) would most likely want to be within the scope of the investment property guidance being developed by the FASB, since they would be outside the scope of the leases standard in such circumstances. However, the boards have acknowledged that they need to further discuss how a single-model approach would apply to property leases and other similar leases.

The boards also made tentative decisions regarding subleases and reaffirmed their March decision on short-term leases. (Note that all of the boards’ decisions are subject to change before any final standard is released.) The FASB staff’s summaries of the June 13–15, 2011, joint meeting are available on the FASB’s Web site. More detailed meeting summaries from Deloitte observers are available on Deloitte’s IAS Plus Web site but should not be regarded as official or final.

Editor’s Note: In addition to their decisions on the leases project, the FASB and IASB have decided to reexpose the proposed revenue standard. Given their stated reasons for reexposing the revenue standard, we believe it is very likely that the boards will also decide to reexpose the lease standard. If the boards decide to reexpose the lease standard, the issuance of a final leases standard will most likely be pushed back to mid or late 2012. The boards have still not voted on an effective date. We expect them to vote on these lease topics sometime in the next couple of months.


The FASB’s June 15 action alert stated that the boards decided to affirm the views in the ED that a “head lease and a sublease should be accounted for as separate transactions.” In addition, the agenda papers from the meeting indicated that the boards will clarify that intermediate lessors should do the following:

(a) As a lessee in a head lease arrangement, it should account for its lease with the head lessor (head lease), including the measurement of the ROU asset, in accordance with the decisions-to-date for all lessees.

(b) As a lessor in a sublease arrangement, it should account for its lease with the sublessee (sublease) in accordance with the decisions-to-date for all lessors.

Short-Term Leases

The boards decided to reaffirm their decisions on short-term leases that they made at their March 2011 meetings. Lessors and lessees will be allowed to account for leases with a maximum possible lease term of 12 months or less, including any options to renew, by not recognizing lease assets or lease liabilities and by recognizing lease payments in profit or loss on a straight-line basis over the lease term, unless another systematic and rational basis is more representative of the time pattern in which use is derived from the underlying asset (i.e., a short-term lease could essentially be treated as an operating lease).

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