Date recorded:

The staff introduced the paper by noting that the FASB staff is undertaking initial work on lessor accounting issues during the comment period of the Leases discussion paper. At this meeting the Board will be asked to consider analysis of rights and obligation in a simple lease contract.

The first question the staff asked the Board was whether the Board agreed that the lessor has an asset for its right to receive rental payments from the lessee. The Board unanimously agreed.

The Board then considered what is the credit? That is, does the lessor derecognise all or a portion of the leased item or does the lessor have a liability for the obligation to allow the lessee to use the leased item?

  • View A: The lessor is viewed as having transferred a portion of the leased term to the lessee.
  • View B: The lease contract is viewed as creating a new right, leaving the lessor's rights relating to the leased item unchanged. The leased item is treated as the lessor's economic resource and continues to recognise the leased item.

Some Board members expressed support for view A, although the majority of Board members supported view B. There was disagreement amongst Board members as to which of the views is consistent with the framework. Those who supported View B expressed a number of concerns with View A, including the fact that they were concerned that following the approach in View A would give a day 1 profit. Those in support of View A were concerned that View B would result in entities (for example, banks) having assets on their balance sheet for which all the risks and rewards had passed on to someone else. Concerns were also expressed that View B was 'grossing up' the balance sheet and would potentially impact on ratios. It was noted, however, that this may be overcome by presenting the gross amounts on a linked (net) basis.

The (acting) Chair said he would like more time to reflect on the issues and requested the staff to consider the issues raised by the Board members, although it was noted that a significant majority of the Board members favoured View B.

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