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Leases

Date recorded:

Application guidance on when to use the performance obligation or derecognition approaches (cont.)

The Boards continued their discussion on the hybrid approach for lessor accounting. After a considerable debate, the Boards remained split on the cut between derecognition approach and performance obligation approach.

In general, the majority of the IASB members preferred more contracts to be accounted using derecognition approach, whereas the FASB members preferred more contracts to be accounted using performance obligation approach. The FASB suggested that contracts that expose the lessor to the risk of significant variability of returns over the lease term should be accounted for using the performance obligation approach, whereas several IASB members preferred a purer derecognition approach.

Finally, the IASB Chairman concluded that any of the discussed distinction criteria would not be operational and suggested that each Board develops a preferred default approach for which a set of exceptions would be developed. The IASB tentatively opted for the derecognition approach to lessor accounting whereas the FASB tentatively opted for performance obligation approach to lessor accounting. The Boards agreed to discuss the default preferred approach at separate sessions and to continue their discussions at a joint session on Thursday.

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