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Project Update

Leases—Joint Project of the IASB and FASB

Last Updated: June 23, 2009 (Updated sections are indicated with an asterisk *)

This project update summarizes the project activities and decisions of the IASB and the FASB (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.

Project Objective
Due Process Documents
*Decisions Reached at the Last Meeting
*Summary of Decisions Reached to Date
Next Steps
*Board/Other Public Meeting Dates
Background Information
Contact Information

Project Objective

The objective is to create a common standard on lease accounting to ensure that the assets and liabilities arising from lease contracts are recognized in the statement of financial position.

Due Process Documents

On March 19, 2009, the Boards published, for public comment, a Discussion Paper, Leases: Preliminary Views (Discussion Paper).

• Download the FASB Discussion Paper. Download the IASB Discussion Paper which is the same except for minor differences in spelling, style, and format. 
   
• Read the press release introducing the Discussion Paper. 
   
• Read a snapshot of the Boards’ preliminary views in the Discussion Paper.

The Discussion Paper is open for public comment until July 17, 2009. Respondents should submit one comment letter to either the IASB or the FASB.

The Discussion Paper includes questions related to the boards’ proposals. Interested parties may answer all or selected questions in the Discussion Paper or may comment on any other issue that the boards should consider in developing their initial views into an Exposure Draft of a joint lease accounting standard.

The Boards plan to publish the Exposure Draft in 2010.

*Decisions Reached at the Last Meeting (June 17, 2009)

The Board discussed several lessee accounting issues that were not addressed in the Discussion Paper.  The Board reached the following tentative decisions:

Sale and leaseback transactions

In a sale and leaseback transaction, a seller/lessee would consider whether the entire leased asset qualifies for derecognition. If the entity determines, after applying the applicable guidance for the underlying asset, that the transaction qualifies as a sale, it would derecognize the leased item and recognize a right-of-use asset and an obligation to make rental payments for the leaseback. The Board will consider whether additional criteria are needed to help entities determine whether a sale and leaseback transaction represents a sale and how to account for a sale and leaseback transaction when the sales prices or rental payments are not at market rates.

Impairment of the right-of-use asset

A lessee preparing financial statements in accordance with international financial reporting standards would follow the guidance in IAS 36, Impairment of Assets, to determine whether its right-of-use asset is impaired and a loss should be recognized.   A lessee applying U.S. generally accepted accounting principles would follow FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to determine whether its right-of-use asset is impaired and a loss should be recognized.

Revaluation of the right-of-use asset

A lessee would subsequently report a right-of-use asset at cost adjusted for amortization and impairment losses, if any.   A lessee would not be permitted to subsequently remeasure its right-of-use asset to fair value unless required to do so to recognize an impairment loss.

Initial direct costs

A lessee would expense any initial direct costs as incurred.

Transition

A lessee would apply the new lease standard by recognizing an obligation to pay rentals and a right-of-use asset for all outstanding leases at the transition date. The obligation and the asset would be measured at the present value of the lease payments, discounted using the lessee’s incremental borrowing rate on the transition date.

Lessor Accounting (see May 2009 minutes and meeting summary)

The Boards decided that a lessor would recognize an asset representing its right to receive rental payments from the lessee (a lease receivable) and a liability representing its performance obligation under the lease—that is, its obligation to permit the lessee to use one of its assets (the leased item). The lessor will satisfy that performance obligation (and will recognize revenue) over the lease term.

Lessee Accounting

Next Steps

Lessor Accounting

The following issues will be discussed at a future Board meeting:

1. How a lessor would initially and subsequently measure the leased item, the lease receivable, and the performance obligation



2. How a lessor would present the leased item, the lease receivable, and the performance obligation in its statement of financial position



3. What differentiates a sale of an asset from a lease



4. Whether a lessor would apply a right-of-use model to a short-term or immaterial lease.

Lessee Accounting

The Boards will consider responses to the Discussion Paper as they further develop the proposed model working toward issuing an Exposure Draft. The Boards plan to issue an Exposure Draft in 2010.

*Board/Other Public Meeting Dates

The IASB meeting summaries and FASB meeting minutes are provided for the information and convenience of constituents who want to follow the Boards’ deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final Statement, Interpretation, FSP, or Statement 133 Implementation Issue.

Contact Information

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