May 2013
International Financial Reporting Standards
Revised Exposure Draft—
Leases
This presentation has been prepared to help stakeholders understand the current status of the leases project of the FASB and the
IASB. The views expressed in this presentation are those of the presenters. Official positions of the FASB and the IASB are reached
only after extensive due process and deliberations.
The views expressed in this presentation are those of the presenter,
not necessarily those of the IASB or IFRS Foundation.
Presenters for Today’s Webcast
Darrel Scott, IASB member
Patrina Buchanan, Technical Principal
Sarah Geisman, Technical Manager
© 2012 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
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Housekeeping Items
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© 2012 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Leases ED is Available
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The documents are available online at www.ifrs.org
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The comment period ends on 13 September 2013
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Send comments electronically to the IASB website
(www.ifrs.org) using the “Comment on a Proposal” page
© 2012 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Agenda
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Background
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Lessee accounting
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Lessor accounting
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Other aspects
•
Next steps
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Why a Leases project?
Lessee
• Most assets and liabilities are offbalance-sheet
• Limited information about
operating leases
Lessor
• Lack of transparency about
residual values
• Consistency with lessee proposals
and revenue proposals
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$1.25
trillion
of off-balancesheet operating
lease
commitments for
SEC registrants*
* Estimate according to the 2005 SEC
report on off-balance-sheet activities
How the proposals are an Improvement
Existing
accounting issues
Lessee
Most assets and
liabilities are offbalance-sheet
Insufficient disclosure
Lessee about operating leases
Lessor
Lack of transparency
about residual values of
equipment and vehicles
The proposals
Recognition of lease
assets and liabilities for
all leases of more than
12 months
Enhanced disclosure
requirements
Separately account for
residual asset
Enhanced disclosures
about residual asset’s
exposure to risk
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How the proposals
are an improvement
Greater
transparency
about leverage,
assets used in
operations, and
cash flows
Greater transparency
about residual values
Proposed right-of-use model
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A lease contract conveys the right to use an asset (the underlying asset) for a period of
time in exchange for consideration
Right-of-use asset
Lessor
Lessee
Lease payments
Dual approach
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There is a wide spectrum of lease transactions
with different economics
Start of lease
5-year lease
Most
equipment/
vehicles
Asset consumption
more than insignificant
Most real
estate
Asset consumption not
more than insignificant
End of lease
Lease classification test
Leases for
equipment/vehicles
are Type A leases
unless
• Lease term is
insignificant
relative to total
economic life of
asset
• Present value of
lease payments is
insignificant
relative to fair
value of asset
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Leases for real estate
are Type B leases
unless
• Lease term is
major part of
remaining
economic life of
asset
• Present value of
lease payments is
substantially all of
fair value of asset
Lessee accounting model
Balance
sheet
Type
A
Type
B
Most leases of
equipment/
vehicles
Right-of-use
asset
Lease liability
Most leases of
real estate
Right-of-use
asset
Lease liability
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Income
statement
Amortisation
Interest
expense
Single lease
expense on a
straight-line
basis
Cash flow
statement
Cash paid for
principal and
interest
payments
Cash paid
for lease
payments
Lessee disclosures
Qualitative
General description of
leases
Terms of:
- variable lease payments
-extension/termination
options
-residual value guarantees
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Quantitative
Judgements
& Risks
Maturity analysis of
undiscounted cash flows
for each of first 5 years
plus total thereafter
Nature and extent of risks
arising from leases
Reconciliation of lease
liability*
Restrictions and
covenants
Expense relating to
variable lease payments
Information about leases
not yet commenced
Reconciliation of right-ofuse asset by asset class
Significant assumptions
and judgement
Lessor accounting model
Balance
sheet
Type
A
Type
B
Most leases of
equipment/
vehicle
Lease
receivable
Residual asset
Most leases of
property
Continue to
recognise
underlying
asset
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Income
statement
Interest
income and
any profit on
the lease
Lease income,
typically on a
straight-line
basis
Cash flow
statement
Cash received
Cash
received for
lease
payments
Lessor disclosures
Qualitative
Quantitative
General description of
leases
Reconciliation of lease
receivable and residual
asset
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Judgements
& Risks
Nature and extent of risks
arising from leases
Table of lease income
Terms of:
-variable lease payments
-extension/termination
options
-purchase options
Maturity analysis undiscounted
cash flows for each of first 5
years plus total thereafter
Carrying amount of residual
assets covered by residual
value guarantees
Significant assumptions
and judgement
Risk management for
residual assets
Reducing Cost and Complexity in
Response to Feedback on the 2010 ED
Short-term leases
• Option to exclude leases with a
maximum term of 12 months or
less
Variable lease payments
• Excluded if payments are not
linked to an index or a rate
Renewal options
• Excluded unless significant
economic incentive to exercise
the option
© 2012 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
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Next steps
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Revised EDMay 2013;
Comment period ends13 September 2013
OutreachMay through October
2013
Redeliberationsbeginning Q4 2013
Final standard and
effective dateTBD
Thank you
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