For lessees, the ED published on 16 May 2013 proposes the recognition of a liability and a right-of-use asset for all leases with a profit or loss impact dependent on the classification of a lease. The lessor model in the ED is similar to current lease accounting with some nuances for the recognition of revenue and discounting of the residual asset.

The field-test, conducted through a questionnaire developed by EFRAG and National Standard Setters, was focused on the practical application of the new requirements. Forty preparers participated in the field-test with almost half of the respondents (18) from Germany. Industrywise, respondents from the retail industry were the biggest group (12).

Regarding the practical implications the main findings were that the most common areas of concern were assessment of the lease term where 67% of the respondents reported difficulties in applying the proposed guidance and disclosure requirements where the majority of respondents (also 67%) expect difficulties in applying the disclosure requirements as they consider them to be complex, too extensive and too detailed.

Apart from the practical implications, respondents also commented on other issues. The following fundamental concerns about the proposals were expressed (reproduced from the EFRAG report):

• the IASB had not explained why they believed a lease creates assets and liabilities at commencement;
• the right-of-use model did not depict the business model of the entities and did not reflect that most leases are ways to obtain a service rather than obtain access to an asset;
• the proposals were complex, involve significant judgment and would likely result in inconsistent application;
• there was not a clear need for a change in accounting guidance for leases and the IASB should rather considering improvements in disclosures;
• the benefit of the new accounting model was questionable or at best limited, while the cost to apply it was extremely high especially for entities that have thousands of individually small leases; and
• the proposals would result in time-consuming discussions because of diverging interpretations from auditors.

Please click for access to the full field-test results on the EFRAG website.