29 July 2009

EFRAG comments on the IASB’s DP leases

EFRAG considers that IASB should not take a final decision on the approach to lease accounting to be adopted for lessees until the lessor accounting part of the project has progressed significantly.

Lease contracts are very important sources of financing for entities and the existing accounting standard on lease accounting has been criticised, particularly by users. EFRAG is pleased that the IASB has decided to address lease accounting and we support the decision to do the work as a convergence project with the FASB. EFRAG’s summarised comments are:

·         The discussion paper (DP) focuses almost exclusively on lease accounting by lessees. EFRAG is very uncomfortable about this because it believes some of the crucial decisions might have been different based on both perspectives. EFRAG believes it is essential that the IASB takes no final decisions on the approach to lease accounting to be adopted for lessees until the lessor accounting part of the project has progressed significantly. 

·         EFRAG supports the ‘right-of-use’ approach for all lease arrangements, but would wish to have the opportunity to consider fully the implications of such an approach for lessons before taking a position on the matter. 

·         Applying the ‘right-of-use’ approach to all leases will make the distinction between leases and service arrangements even more important than it is currently. It will therefore be important to make sure there is a clear, principle-based boundary between the two.

·         EFRAG members are divided on the DP’s proposal that lessees should recognise a single lease asset and a single lease liability. Some members believe that the approach proposed is pragmatic and makes it possible to propose important improvements in lessee accounting. Some other members believe that the approach proposed will result in amounts being recognised as liabilities that are not liabilities, and favour adoption of the components approach to the extent possible.

·         Finally, EFRAG notes that the IASB has undertaken to carry out, and issue, impact assessments on all proposed major new standards. EFRAG is not sure whether it was the IASB’s intention to carry out such an assessment on the proposals in the DP, but EFRAG would strongly recommend that it does so because of the fundamental effect the proposals will have for many entities.

Letter

 

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