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Project Update
Leases—Joint Project of the IASB and FASB
Last Updated: March 19, 2009
Return to Leases Project Update Main Page
Background Information
See the FASB Discussion Paper, Leases: Preliminary Views, issued on March 19, 2009.
Board/Other Public Meeting Dates (prior to the issuance of the discussion paper)
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 standard.
(Please see main page for meetings subsequent to the issuance of the discussion paper.)
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Topic |
IASB Meeting Summaries and Observer Notes |
FASB Board Minutes |
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IASB/FASB Board Meetings—Initial Recognition and Measurement of the Lessee’s Obligation to Pay Rentals, Subsequent Measurement, Lease Presentation, and Subleases |
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Joint Working Group Meeting (Norwalk) |
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IASB/FASB Board Meetings—Approach to Project (Lessor Accounting), Options to Extend or Terminate a Lease, Contingent Rentals, Measurement, and Classification Criteria |
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IASB/FASB Board Meetings—Other Lessee Obligations and Variable Lease Payments |
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IASB/FASB Board Meetings—Measurement of a Lessee’s Liability to the Lessor, Measurement of a Lessee’s Right-to-Use Asset, and Initial Recognition of Assets and Liabilities in Lease Contracts |
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IASB Board Meeting/FASB Education Session—Options to Terminate or Extend a Lease |
n/a |
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Joint IASB/FASB Board Meeting (London) —Scope |
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IASB/FASB Board Meetings—Assets and Liabilities and Different Accounting Models |
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Joint Working Group Meeting (London)
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IASB/FASB Board Meetings—Agenda Decision |
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Joint IASB/FASB Board Meeting (London) |
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IASB Board Meeting—Preliminary Discussion of a Project on Leases |
n/a |
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Other Public Meetings
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Meeting of: |
Materials |
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Financial Accounting Standards Advisory Council (FASAC) |
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Standards Advisory Council (SAC) (London) |
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Small Business Advisory Committee (SBAC) |
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Financial Accounting Standards Advisory Council (FASAC) |
Background Information
Memorandum of Understanding (MoU)
In February 2006, the IASB and the FASB issued an MoU that described a joint work plan to expedite global convergence in accounting standards and that established a series of milestones to be reached by 2008. The leases project is part of the 2006 MoU. Under the 2006 MoU, the IASB and the FASB would have to consider and make a decision about the scope and timing of a potential leasing project by 2008. This goal was achieved when the IASB and the FASB added the leasing project to their respective agendas on July 19, 2006.
The Boards recently updated the 2006 MoU at the April 2008 joint meeting. As part of the updated MoU, the leases project’s estimated completion date is 2011.
History of the Leases Project
FASB Statement No. 13, Accounting for Leases, issued in 1976, provides guidance on accounting for leases for both lessors and lessees. According to the provisions of Statement 13, a lessee should recognize both an asset and a liability for a lease that transfers substantially all benefits and risks incident to the ownership of property, and a lessor should recognize such a lease as a sale or financing. Under Statement 13, a lease that does not transfer substantially all benefits and risks incident to the ownership of property is classified as an operating lease by the lessee. Under operating lease classification, the lessee does not recognize any elements of the lease on its balance sheet (that is, it does not recognize an asset for the right to use the leased item or a related liability for the future lease payments); rather, the lessee recognizes rental expense as it becomes payable.
IAS 17, Leases, was issued by the IASC in 1982 and was very similar to Statement 13 as it was based on the extent to which risks and rewards incident to ownership of a leased asset lie with the lessor or the lessee. Although IAS 17 has been amended several times, its most recent version retains the fundamental approach to the accounting for leases contained in the original standard.
Following the issuance of Statement 13 and IAS 17, the FASB, IASB, Emerging Issues Task Force (EITF), Standing Interpretations Committee (SIC), International Financial Reporting Interpretations Committee (IFRIC), Securities and Exchange Commission (SEC), and American Institute of Certified Public Accounting (AICPA) issued numerous pieces of guidance addressing various issues relating to the application of Statement 13 and IAS 17. Some believe that the additional guidance adds to the complexity of existing guidance in this area.
The Boards considered adding a lease accounting project to their agendas in response to the criticisms of many of their constituents, including the FASB’s Financial Accounting Standards Advisory Council (FASAC), the FASB’s User’s Advisory Council (UAC), and the SEC’s 2005 Report and Recommendations Pursuant to Section 401(c) of the Sarbanes-Oxley Act of 2002 On Arrangements with Off-Balance Sheet Implications, Special Purpose Entities, and Transparency of Filings by Issuers (Off-Balance Sheet Report). Many of those constituents indicated that current lease accounting standards fail to provide complete, transparent information and urged the Boards to undertake a lease accounting project. Also, in June 2004, the IASB and the FASB agreed that accounting for leases was in need of a fresh look and that any resulting improvements should be made through a major project conducted jointly when resources permitted.
Standard-setting activity during the past 20 years has not been limited to merely interpreting the leasing approach in Statement 13 and IAS 17. For example, a group of international standards setters (including FASB representatives), referred to as “the G4+1,” undertook an effort to reconsider the accounting for leases based on the existing conceptual framework. Their efforts resulted in the issuance of two Special Reports issued in 1996 and 1999, respectively: Accounting for Leases: A New Approach and Leases: Implementation of a New Approach. These reports describe a proposed conceptual approach to lease accounting focusing on the fundamental components of lease transactions.
The issues relating to lease accounting that need to be addressed are much the same as those previously considered in the G4+1 Special Reports. However, the objective is to analyze these issues in terms that are consistent with current projects, particularly those on revenue recognition, nonfinancial liabilities, derecognition, and the conceptual framework. In July 2006, the FASB and the IASB decided to add a joint leasing project to their respective agendas because of their concern that the current accounting in this area does not clearly portray the resources and obligations arising from lease transactions.
Working Group
During the third quarter of 2006, the Boards sent out an invitation for nominations to join the joint international working group planned for this project (invitation for nominations). In the fourth quarter of 2006, the Boards announced the members of the working group (announcement of working group members).