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IFRS industry insights: The leases project — An update for the financial services industry

Published on: 15 May 2011

In August 2010, the IASB and FASB (the 'Boards') took a major step towards overhauling the existing lease accounting rules by issuing a set of proposals in the form of an exposure draft (ED). The proposals would significantly affect the accounting for lease contractors for both lessees and lessors across all industries.

Since issuing the ED, the Boards have conducted extensive outreach. The comment period, which ended on 15 December 2010, garnered over 750 responses, and resulted in roundtable sessions that included participants from all constituencies, including preparers, users and auditors from a wide cross section of industries.

Many respondents indicated that the proposals would significantly affect their key performance indicators, existing debt covenants and ability to obtain financing. As a result, these respondents believe that there would be a desire for short-term leases and an overall decrease in the leasing of assets.

Respondents from the financial services industry, who commonly act as lessees and lessors, expressed concern about a number of proposals in the ED, including the recognition of assets and liabilities, expense recognition pattern for lessees, contracts containing lease and service components, variable lease payments and lease term.

The Boards recently discussed these topics and made some tentative decisions which differ from the proposals in the ED.  Several financial services industry respondents also expressed concern over the proposals in the ED regarding lessor accounting, but the Boards have only recently commenced redeliberation on lessor accounting. We will update you on tentative decisions reached relating to lessor accounting in future IFRS industry insights.


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