Annual Improvements Project 2008

Date recorded:

IAS 17 Leases: Classification of leases of land and buildings - transition issues

The Board discussed two issues identified by the staff during the pre-ballot process on the modified retrospective transition provision that the Board agreed to adopt in December 2008. These issues were:

  • Should an entity apply the tests to reassess lease classification based on the conditions existing on (a) the date of adoption; or (b) the inception of the lease?
  • Should an entity recognise the asset and liability related to a finance lease based on amounts determined as of (a) the date of adoption; or (b) the inception of the lease?

The Board agreed a hybrid approach as follows:

For those leases for which retrospective information is available, an entity would:

  • reassess classification of unexpired land leases based on conditions existing as of the inception dates of the leases; and
  • recognise land leases that are now finance leases retrospectively based on the fair values as of the inception dates of the leases.

For those unexpired land leases for which retrospective information is not available, entities would be permitted to reassess lease classification and recognise lease assets and liabilities based on conditions that exist and fair values determined as of the adoption date.

In addition, the Board decided not to provide any additional transitional provisions. The revised standard would apply retrospectively as required by IAS 8 and any adjustment on adoption would be recognised in opening retained earnings of the earliest period presented.

Mr Leisenring indicated his intention to dissent from the amendment on the basis that he disagreed with the conclusion that any right to the land passes in a long lease when the title to that land does not pass.

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