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.
Accounting Rules
LEASE ACCOUNTING PROJECT
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.
The Boards have announced their intention to re-expose their leasing proposals in late 2011.
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 lease accounting standard.
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.
The Boards have announced their intention to re-expose their leasing proposals in late 2011.
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 lease accounting standard.
REVENUE RECOGNITION PROJECT
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.
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.
