Accounting Alert - May 2013
Staying on top of developments
Leases exposure draft re-exposed
The International Accounting Standards Board (IASB) has re-exposed its proposed approach for the recognition and measurement of leases as ED/2013/6 Leases. This exposure draft addresses some of the concerns raised in submissions on the 2010 exposure draft, particularly around the profile of recognition in the income statement and the complex judgements the 2010 ED included around lease term and variable lease payments. Given the significance of changes to the proposals, the IASB has decided to re-expose the lease accounting proposals for comment.
The proposals in ED/2013/6 would significantly affect the accounting for lease contracts by both lessees and lessors. In addition, changes in recognition, measurement, and presentation of leases under the revised proposals may significantly impact financial statement metrics.
- Operating lease/off balance sheet treatment would be eliminated for virtually all leases except for short-term leases
- The lease expense recognised each period could be significantly impacted depending on the nature of the underlying leased asset as property or non-property
- Detailed analysis of lease payments will be required for both classification and measurement
- The nature of the underlying leased asset will dictate whether the asset is derecognised and the pattern of income > recognition. Some leases previously treated as operating leases may require the underlying asset to be derecognised and be replaced with a lease receivable and a residual asset
The proposals would require management to exercise significant judgement in areas including identifying a lease, determining the lease term, and measuring lease assets and liabilities compared to current practice.
Submissions are due to the New Zealand Accounting Standards Board by 16 August 2013 and to the IASB by 13 September 2013.
Deloitte’s global edition of IFRS in Focus outlines the proposals included in the May 2013 exposure draft. IFRS in Focus: IASB re-exposes proposals on lease accounting is available for download at:
Additional resources available:
- Press release on the IASB’s website (link to IASB website)
- Exposure Draft ED/2013/6 Leases (link to IASB website, includes access to the Basis for Conclusions and the Illustrative Examples)
- IASB Snapshot introducing the ED (link to IASB website)
- Deloitte IFRS podcast — Revised lease accounting proposals interview
- IAS Plus project page on the IASB’s leases project
- Industry insights (link to IAS Plus, includes IFRS industry insights on the implications of the revised leases exposure draft for the following industries: energy and resources, consumer business, manufacturing, real estate, telecommunications and financial services)