FASB / IASB Lease Accounting Project

A major project is currently underway, under the joint auspices of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), to update lease accounting.

FASB / IASB have created a small working group on the project, which includes a member of the AWG, who coordinates with the larger internal AWG subgroup. AWG is taking joint positions on the project. AWG has been consulting with IATA, leasing associations, and others during this process.

AWG prepared an initial position paper on the IASB/FASB International Lease Accounting Project.  That can be downloaded here.  This paper was submitted to both IASB and FASB in 2008.

In March 2009, FASB/IASB released the preliminary views on implementing a new approach to lessee accounting.  The approach is guided by the principle that all leases give rise to liabilities of future rental payments and assets (the right to use the leased asset) that should be recognized in an entity's statement of financial position. 

AWG and the International Air Transport Association (IATA) jointly prepared and agreed on a position paper on that document.  This paper was submitted to FASB and IASB on 17 July 2009.  The paper thus represents the consensus view of the key participants in the air transport sector.  That  paper can be downloaded here. 
 

In February 2010, AWG  submitted a letter to FASB and IASB relating to the transfer of control criteria for lease and lessor accounting. That paper can be downloaded here.

An exposure draft will be issued on this project in the summer of 2010.  AWG will be commenting on that document.

The starting point on the project, as articulated by FASB/IASB, is that ‘existing standards do not require balance sheet recognition of assets and liabilities’.  Based on initial work of the study group, the revisions may be some combination of:

(i)         on balance sheet treatment,

(ii)        fair value accounting, and

(iii)       other elements of enhanced disclosure.

The project currently focuses on the ‘right to use’ model, meaning that a lessee’s asset is the value of its use right, and its liability is its payment obligations.  A lessor is deemed to have two assets, which would introduce a significant change: a receivable (the lease rental), and its residual interest.

Main additional elements to be addressed include:

(i)         measurement (including the timing of recognition);

(ii)        scope (including the line between leases and service contracts);

(iii)       lessor accounting; and

(iv)       disclosure

Further current background materials are available on the FASB and IASB websites.

Revenue Recognition Project

FASB and IASB are also engaged in a wide-ranging project on the recognition of revenue.  That project would apply to aircraft sales, leasing and financing transactions, and, in particular, could impact accounting treatment relating :

(i) construction and production contracts to customers' specification;

(ii) warranty services;

(iii) long-term maintenance service contracts; and

(iv) financing and leasing contracts.

AWG prepared an initial position paper on this project, and submitted it to FASB and IASB in June 2009.  That paper can be downloaded here.

An exposure draft will be issued on this project in the summer of 2010.  AWG will be commenting on that document.

Further current background materials are available on the FASB and IASB websites.