An agreement has been reached by the
international standard-setting bodies on the proposed changes to
lease accounting and a second exposure draft scheduled for
release in the fourth quarter of this year.
The International Accounting Standards Board
(IASB) and the US Financial Accounting Standards Board (FASB) have
agreed on a double-barrelled approach in which some lease contracts
would be accounted for using a right-of-use approach similar to
that proposed in the initial exposure draft released in 2010 and
some leases would be accounted for using a straight-line lease
expense approach.
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The right-of-use approach will typically be
applied to equipment leases with the straight-line method largely
applied to real estate leases, according to a spokesman for the
IFRS Foundation, the independent body responsible for the IASB,
although this definition is not binding.
Decisions on the leasing project reached to
date are preliminary and the joint exposure draft will be open for
consultation from stakeholders for a maximum of four months,
although a schedule has not yet been set.
Hans Hoogervorst, chairman of the IASB said:
“The boards have reached agreement on a proposed approach to put
leases over one year on the balance sheet.
“We will publish our proposals for public
comment, with a view to completing this important convergence
project during 2013.”
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By GlobalDataLeslie Seidman, chairman of the FASB, said:
“The boards carefully considered the diverse views of stakeholders
about whether the income statement profile of all leases should be
the same.
“On balance, we decided that leases that
convey a relatively small percentage of the life or value of the
leased asset should be recognised evenly over the lease term.”
Leaseurope responds to
proposal
Mark Venus, finance director with BNP Paribas
Lease Group France and chair of Leaseurope’s Accounting Committee
said:
“The Boards have again re-introduced a form of
lease classification into their proposals. On the one hand, this
can be viewed as a positive development because both Boards have
recognised that not all contracts referred to as leases have the
same economic characteristics and effects. On the other hand, the
new criteria developed for distinguishing between these contracts
are somewhat curious as they are simply based on an
equipment-versus-property divide.
“Equally, the accounting approaches proposed
seem to have either conceptual or economic weaknesses and will
perpetuate different accounting outcomes for similar transactions.
While we will have to carefully review the proposals when they are
published, at this point in time we still do not see any
improvement significant enough to justify changing the existing
guidance for leases.”
“IAS 17 recognises the very different nature
of the population of contracts falling under the term leases and,
while it may indeed benefit from incremental improvements, such as
better disclosures and a new look at its classification criteria,
it has a lot of merit and is far from being as broken as the Boards
say it is. In fact, one of its flaws is the temptation to refer to
US GAAP bright lines when applying its classification criteria. It
would be far more efficient for the Boards to focus on ways to
overcome this rather than devising another model that fails to
reflect economic reality.”
Tanguy van de Werve, Leaseurope’s director
general, added: “The European leasing industry, as well as other
key stakeholders such as the European Financial Reporting Advisory
Group (EFRAG), have repeatedly called for the Boards to develop
their proposals for Leases in a manner that takes into account an
analysis of its effects.
“This includes weighing up the costs of change
with its informational benefits. However, this has yet to be done
and the benefit of improved information for users of accounts still
needs to be proven. All that we seem to have learnt since the
project kicked off in 2006 is that not all leases are the same and
that different types of users of accounts have different
informational needs.”
