Accounting Rules
AWG monitors and engages in policy discussions regarding accounting rules as they impact aircraft financing and leasing.

Accounting rules must reflect the economic realities of aircraft financing and leasing transactions. AWG seeks to promote that principle in connection with the development and interpretation of accounting rules.

The accounting treatment of leases and revenue recognition are currently under review by Financial Accounting Standards Board ('FASB') and the International Accounting Standards Board ('IASB'). The outcome of these processes may materially impact the aviation sector. AWG is assessing and contributing to these reviews.

LEASE ACCOUNTING PROJECT

A major project is currently underway, under the joint auspices of FASB / IASB (the Boards) on lease accounting.

The Boards' starting point is that 'existing standards do not require balance sheet recognition of assets and liabilities'. To address this perceived shortcoming, the Boards are advancing the 'right to use' model: an overarching principle that all leases give rise to liabilities (future rental payments) and assets (the right to use the leased asset) that should be recognised on a lessee's statement of financial position. In consequence, a lessor is deemed to have two assets, which would introduce a significant change: a receivable (the lease rental) and a residual interest.

After years of preliminary work, including that aided by an international working group on which AWG was represented, the Boards issued an exposure draft on 17 August 2010.

AWG submitted a detailed comment letter on that exposure draft, such letter superseding all prior comments by AWG on this topic. It starts from the basic premise that the proposed new standard reflects concerns about lessee not lessor accounting, and that the latter is well-understood by preparers and users of accounting materials. AWG has submitted a subsequent letter responding to the deliberative activities of the Boards.

 

AWG submitted two subsequent letters in the course of 2011 and 2012 responding to further deliberative activities of the Boards.

 

The Boards released the re-exposure draft on 16.05.2013. On 13.09.2013, AWG submitted its comment letter on the re-exposed draft lease accounting standard to the Boards. In tandem, AWG and IATA issued a joint comment letter on the Boards' proposals. AWG has significant concerns regarding the model proposed in this exposure draft (ED), and, thus, does not support the issuance of a final standard in this form. For ease of reference, a summary of AWG's position is provided. AWG is currently preparing its assessment of the Boards' proposed revfised standard. Broadening the scope of these efforts, AWG has developed a survey on the exposure draft that it is being distributing to stakeholders, including through ISTAT channels. Other interested parties are invited to participate in the AWG lease accounting survey available on this page.


On 5 March 2014, AWG submitted further comments to the Boards following the presentation of a Staff Paper containing results of user outreach on lessee accounting at the 22 January 2014 Joint Education Session (IASB Agenda Ref 3D/FASB Agenda Ref 265) that compares the results of the AWG lease accounting survey with the conclusions of the Staff Paper.

The final lease accounting standard is expected to be released in 2014 with an effective date targeted for 2017.

REVENUE RECOGNITION PROJECT

A major project is currently underway, under the joint auspices of FASB / IASB (the Boards) on revenue recognition.

That project would apply to aircraft sales, leasing and financing transactions, and, in particular, could impact accounting treatment relating construction and production contracts to customers' specification, warranty services, long-term maintenance service contracts, and financing and leasing contracts.

After years of preliminary work, the Boards issued an exposure draft on 24 June 2010.

AWG submitted a detailed comment letter on that exposure draft, such letter superseding all prior comments by AWG on this topic. In it, while noting our support for harmonised accounting standards, AWG outlined concerns about the proposed treatment of: (i) contract costs; (ii) onerous obligations; (iii) contract segmentation; (iv) identification of performance obligations; (v) transfer of control criteria; variable consideration; (vi) disclosures; and (vii) transition issues.

AWG will update on the outcome of the Boards' assessment of the comments on the exposure draft and the resulting path to and timing of a new revenue recognition statement.