IASB Moves Toward Issuing Final Leases Standard

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By David R. Jones

Oct. 20 — The International Accounting Standards Board unanimously voted Oct. 20 to have its pending leases standard come into force on Jan. 1, 2019.

The effective date for the long-anticipated leases standard was one of several remaining issues on the standard the board resolved at its meeting in London.

IASB remains on pace to publish the final standard by the end of the year, a board staff member confirmed to Bloomberg BNA Oct. 20. No additional board deliberations on the standard are expected.

Allowing Early Application

In setting the leases standard's effective date for reporting periods starting on or after Jan. 1, 2019, IASB also approved, without dissent, a provision permitting early application of the standard—provided that entities put into practice the leases standard before they apply International Financial Reporting Standard 15: Revenue from Contracts with Customers.

Entities would be allowed to apply both the new leases standard and IFRS 15 for the first time in the same reporting period.

Separate New Lease

In addition, IASB unanimously affirmed staff recommendations on so-called sweep issues that the board needed to agree upon before the standard could be issued.

These included treating a change to lease as a separate new lease “only if the modification increases the scope of the lease by adding the right to use one or more underlying assets and if the consideration increases commensurate with that increase in scope,” a staff paper said.

During discussions on how to measure the new lease, one board member suggested that including an example on lease modifications in the standard would prove useful.

Floating Interest Rate Leases

In addressing another sweep issue, IASB agreed that a lessee should update the discount rate for a lease with a floating interest rate whenever lease payments are updated in response to a change in the interest rate used to determine the lessee's payments.

This encompasses situations where payments based on the London inter-bank lending rate are brought up to date.

Returning Underlying Assets

IASB considered as well the sweep issue of the costs associated with returning an underlying asset when a lease ends.

The board adopted the staff's recommendation that “if a lessee has restoration obligations associated with a lease, the lessee should account for these obligations” in line with International Accounting Standard 37: Provisions, Contingent Liabilities and Contingent Assets.

Business Combinations

In another decision, the board said the forthcoming leases standard wouldn't retain the requirements in IFRS 3: Business Combinations for an acquirer to recognize assets and liabilities for short-term leases and leases of low-value assets in business combinations.

One IASB member voiced doubts about this approach, saying there are methods “more consistent with the business combinations literature, but I can live with it.”

Another board member cautioned that if the provision weren't adopted, entities would have to check every lease in every business combination to ensure compliance.

Non-current Assets

Further, IASB determined disclosure requirements for leases that fall within the scope of IFRS 5: Non-current Assets Held for Sale and Discontinued Operations.

The topic emerged from comments on IASB's draft leases standard involving leases that are part of a disposal group held for sale or for a discontinued operation.

A lessee with leases that are within the scope of IFRS 5 needn't provide additional information beyond disclosures that IFRS 5 requires, the board said.

Fine-Tuning Proposals

The Oct. 20 deliberations mark IASB's final step in wrapping up discussions on its leases standard.

IASB and the U.S. Financial Accounting Standards Board jointly released in 2013 a revised exposure draft that would overhaul accounting for leases, and since then they have collaborated to fine-tune their proposed standards.

Similarities, Differences

The two boards intend to issue separate but largely converged standards on leases, with IASB staff highlighting corresponding requirements in both proposals for:

• defining leases;

• recognizing lease assets and liabilities; and

• measuring lease liabilities.


To contact the reporter on this story: David R. Jones in London at correspondents@bna.com

To contact the editor responsible for this story: Xing Gao at xgao@bna.com

Staff papers on the leasing standard are available at: http://www.ifrs.org/Meetings/Pages/IASB-Meeting-October-2015.aspx