The FASB board voted at its meeting yesterday (July 23) to scope out lessor accounting and focus on lessee accounting, in its current joint project on leasing with the IASB. This decision was made to help with timing of a final standard on leasing, by focusing on the area that has received the most concern, off-balance sheet accounting by lessees. Additionally the board believes some aspects of lessor accounting will hinge on decisions reached in other current projects, including Revenue Recognition. Board members noted, however, they and the staff should continue to monitor potential asymmetries in lessor and lessee accounting.
Additionally, FASB agreed that the current IAS 17 (Leases) finance lease model (with some modifications as determined in this project) should be applied to all leases, including those currently classified as operating leases.
The impact of adopting the IAS 17 model, as described in FASB’s board handout: “This would require the lessee to recognize (1) an asset representing the right of use of the leased item for the lease term and (2) an obligation for the present value of the rentals for that term.”
Additional matters discussed related to options to extend or terminate a lease and contingent rentals.
FASB board members were in favor of a single model for leasing, based on the “best estimate” of “expected lease payments” – taking into account options to terminate or extend a lease and other matters; however they were not in favor of requiring a probability-based approach to making this determination, and appeared to lean away from using terms suggested by staff like “reasonably certain,” since such terms are sometimes implemented (e.g. by auditors) with certain percentage of likelihood thresholds or bright lines.
However, it remains to be seen if IASB (at its meeting today) will agree with a non-probability based definition of “expected lease payments” given contingent liabilities in general (under IAS 37, Provisions, Contingent Liabilities and Contingent Assets) are probability-weighted.
The board instructed the staff to obtain additional feedback from the joint working group on leasing as it moves toward issuing its preliminary views in a Discussion Document, expected 4Q08.
Discontinued Operations Proposal Coming
Separately, FASB discussed its upcoming amendments of various standards relating to the definition of, and disclosures relating to, discontinued operations. The board agreed to amend the proposed definition of discontinued operations to include ‘businesses (as defined in Statement 141(R)) that meet the criteria to be classified as held for sale on acquisition’. FASB is now proceeding to a preballot draft of an FSP on this project; other matters discussed can be found in the board handout.
Additional details from yesterday’s FASB meeting can be found in this FEI summary. (summary can be downloaded by FEI members; see info on FEI membership.)
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