FASB/IASB joint meeting: new definition of ‘lease’
05 February 2010
Among other issues, both institutions discussed the definition of leasing, possible objectives for hedge accounting and whether hedging risk components (bifurcation-by-risk) should be permitted.
Leases. At this meeting it was tentatively decided that:
1. The definition of a lease should not be limited to property, plant and equipment. However, the proposed new lease requirements do not apply to assets other than property, plant and equipment.
2. A lease is defined as a type of contract.
3. A lease must convey the right to use an asset.
4. The right to use an asset is conveyed if:
a. The contract conveys the right to use a specified asset. The proposed new lease requirements will provide additional guidance about what constitutes a specified asset.
b. The contract conveys the right to control the use of the underlying asset. The current lease guidance on when a lease conveys the right to control the use of the underlying asset would be included in the proposed new lease requirements. However, this guidance would be rewritten to help clarify its meaning.
5. A lease is for a period of time.
6. The definition of a lease should explicitly state that the right to use an asset is conveyed in exchange for consideration.
The definition of a lease was therefore tentatively agreed as a contract in which the right to use a specified asset is conveyed for a period of time in exchange for consideration.
The IASB/FASB will continue discussing lessee and lessor accounting issues at the February 2010 joint meeting.
The IASB tentatively decided to permit bifurcation-by-risk for financial items and indicated a leaning toward permitting bifurcation-by-risk for non-financial items. Furthermore, the IASB requested that its staff explore a possible approach that the hedged item must be both separately identifiable and measurable for the purpose of determining hedge effectiveness for consideration at a future meeting.
The FASB decided to explore bifurcation-by-risk for financial items and requested the staff to develop possible approaches for consideration at a future meeting.
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