At their joint meeting today, the FASB and IASB continued redeliberating their revisions to lease accounting guidance and primarily discussed the definition of a lease.

Background

The boards’ May 2013 proposal defines a lease as “a contract that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration.” To determine whether a contract contains a lease, an entity would need to evaluate whether:

• “Fulfillment of the contract depends on the use of an identified asset.”
• “The contract conveys the right to control the use of the identified asset for a period of time in exchange for consideration.”

At their October 2014 meeting, the boards made certain tentative decisions about the factors entities should consider when determining the right to direct the use of an identified asset. See Deloitte’s October 23, 2014, journal entry for more information. However, during that meeting, the boards discussed but did not make decisions about different approaches for evaluating whether a customer has obtained, or has the ability to obtain, substantially all of the economic benefits from directing the use of the underlying asset.

Ability to Derive the Benefits From Directing the Use of the Identified Asset

The boards tentatively decided to retain the approach from the May 2013 proposal for evaluating whether a customer has obtained, or has the ability to obtain, substantially all of the economic benefits from directing the use of the underlying asset. That is, the final leases standard would not include a requirement that for a contract to be a lease, the customer must be able to derive the economic benefits from directing the use of an identified asset on its own or together with other resources that are readily available to the customer. As a result, a customer would control the use of an asset if it directs the use of the asset (i.e., directs how and for what purpose the asset is used) and has the right to obtain substantially all the economic benefits from directing the use of the asset during the period of use.

Next Steps

The boards also expect to discuss various other aspects of their proposed leases guidance at future meetings, including the following:

• Lessee disclosures.
• Transition.
• Effective date.
• Cost-benefit analysis.
• Small-ticket lease exceptions (i.e., continue the discussion from the March 2014 joint meeting).
• Other items, including consequential amendments and sweep issues.