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
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Housekeeping Items
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A webcast recording will be available online at
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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
Agenda
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Background
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Lessee accounting
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Lessor accounting
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Other aspects
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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
How the proposals
address the issues
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
End of lease
Most
equipment/
vehicles
Asset consumption
more than insignificant
Most real
estate
Asset consumption not
more than insignificant
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
Cash flow
statement
Interest
income and
any profit on
the lease
Cash
received
Lease income,
typically on a
straight-line
basis
Cash
received
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
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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
Questions and Answers
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Questions and Answers
if readers already make an adjustment why is
the change needed?
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Questions and Answers
can you explain the difference between the 'right of use' vs
'the right to control the use' definition of a lease and where
you see the change in scope impacting current lease
arrangements?
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Questions and Answers
Has the Board considered the issue of owned assets
where parts of the whole asset are depreciated at different
rates where they have different useful economic lives. How
can this be applied to Type A right of use assets, or the
previous 'finance leased assets' which in theory should
have an amortisation profile similar to a purchased asset?
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Questions and Answers
what is ´more than insignificant´? It was promised
more guidance would be included in the new
Exposure Draft?
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Questions and Answers
Commercial lease agreements in real estate in EMEA are
normally subject to at least an annual indexationbased on
defined price indices. Will the lessee have to forecast the
increase to account for it?
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Questions and Answers
Anymore guidance on "significant economic incentive"
to be applied for assessing the renewal of options?
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Questions and Answers
Can you provide rationale for the proposed
treatment of "deferred profit" for lessor’s R&R
model?
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Questions and Answers
Do lessors who elected the short-term lease exception
need to derecognise the underlying asset at the
commencement date?
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Questions and Answers
What happens if you are under a Lessor model and the
underlying asset is normally amortised under the unit of
production method?
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Questions and Answers
Does the lessee include interest rate from the
lessor or their own internal borrowing rate?
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Questions and Answers
If lessor is of a type B lease do you have to derecognise
the asset - you mentioned short term leases but not all
type b
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Questions and Answers
Do you expect a difference in identifying whether an
arrangement contains or is a lease as under the current
IFRIC 4?
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Questions and Answers
equipment/vehicles...will they be defined?
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Questions and Answers
Has the risk that the option to exclude short term leases
with a maximum term of 12 months will lead to lease
structuring opportunities to avoid the accounting required
by the proposed standard been considered by the Board?
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Questions and Answers
How do you expect these proposals to feed into
SME accounting
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Questions and Answers
Which effective date can be expected in the
new standard?
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Questions and Answers
What are the proposals for the treatment of
subleases?
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Questions and Answers
We are lessor of containers to more than 200 customers
around the world. Each customers have more than 20 lease
contracts. How does the ED expect us to disclose all
contract terms in the audited accounts ? Thanks a lot
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Questions and Answers
On renewal options, there is an opportunity to leave
these out if "does not show incentive" for lessee to
exercise. Is there a threshold for this, dollar amount for
or definition of incentive?
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Questions and Answers
Please elaborate on impairment test for lease
receivable and residual asset.
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Questions and Answers
Are there any guidelines on Type B for real estate long
leases - eg. 99 year leases. Will these be treated more
like owned properties?
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