FASB, Financial Accounting Standards Board.

Leases—Joint Project of the FASB and the IASB

Last updated on May 16, 2013. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Updated sections are indicated with an asterisk *)

This project update summarizes the project activities and decisions of the FASB and the IASB (Boards). It was prepared by the staff and is for the information and convenience of their constituents. All decisions of the Boards are tentative, may change at future Board meetings, and do not change current accounting and reporting requirements. Decisions of the Boards become final only after extensive due process.

*DUE PROCESS DOCUMENTS

• Download the revised Exposure Draft.
• Use the electronic feedback form to provide comments on the proposed Update.
• Read the press release introducing the proposed Update.
• Read the FAQ on the proposed Update.
• Listen Now or Download the Videocast on the proposed Update.
• Download the revised IASB Exposure Draft.
• Read the FASB In Focus and the IASB Snapshot, which provide summaries of the proposals contained in the revised proposals.

*PROJECT OBJECTIVE AND SUMMARY OF THE PROPOSED MODEL

Leasing is an important activity for many organizations—whether a public or private company, or a not-for-profit organization. It is a means of gaining access to assets, obtaining financing, and reducing an organization’s exposure to the risks of asset ownership. Many organizations lease assets such as real estate, airplanes, trucks, ships, and construction and manufacturing equipment. Because of the prevalence of leasing, it is important for users of financial statements to have a complete and understandable picture of an organization’s leasing activities.

The existing accounting models for leases require lessees and lessors to classify their leases as either capital leases or operating leases and to account for those leases differently. Those models have been criticized for failing to meet the needs of users of financial statements because they do not always provide a faithful representation of leasing transactions.

As a result, there has been a widespread request from users of financial statements and other stakeholders to change the accounting guidance so that lessees would be required to recognize assets and liabilities arising from leases.

In addition, the U.S. Securities and Exchange Commission (SEC) issued a report on off-balance sheet activities in 2005 and recommended that changes be made to the existing lease accounting requirements to ensure greater transparency in financial reporting. A number of academic studies have made similar recommendations.

The objective of the revised Exposure Draft is to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information.

The core principle of the proposed requirements is that an organization should recognize assets and liabilities arising from a lease. This represents an improvement over existing leases standards, which do not require lease assets and lease liabilities to be recognized by many lessees.

A lessee would recognize assets and liabilities for leases with a maximum possible term of more than 12 months.

The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee would depend primarily on whether the lessee is expected to consume more than an insignificant portion of the economic benefits embedded in the underlying asset. For practical purposes, this assessment would often depend on the nature of the underlying asset.

*OUTREACH/FIELD WORK

Webcast

On Monday, May 20, the FASB and the IASB will host IN FOCUS: THE LEASES PROJECT, a live webcast taking place from 10:30 to 11:30 a.m. EDT (3:30 to 4:30 p.m. GMT). The webcast will feature FASB member Russell Golden, IASB member Darrel Scott, and FASB and IASB staff members discussing the proposal and answering questions submitted by viewers. U.S. viewers of the live broadcast will be eligible for up to 1 hour of CPE credit. For more information or to register for the event, click here.

*DECISIONS REACHED AT THE LAST MEETING (April 10, 2013)

The revised Exposure Draft reflects all decisions made to date. For additional information, refer to Board meeting minutes under “Background Information.”
 

*SUMMARY OF TENTATIVE DECISIONS REACHED TO DATE (As of April 10, 2013)

The revised Exposure Draft reflects all decisions made to date. For additional information, refer to Board meeting minutes under “Background Information.”

*NEXT STEPS

The Boards will begin redeliberations after the end of the comment period of the revised Exposure Draft. During the comment period, the Boards will undertake various outreach activities (for example, webcasts, fieldwork, roundtable meetings, etc.) to discuss the proposals with a wide range of interested parties. The Boards plan to consider all feedback and begin redeliberations of all significant issues in the fourth quarter 2013.

Please see the Current Technical Plan for more information about the project timeline.

CONTACT INFORMATION

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