We support the core principle that an entity should recognize assets and liabilities arising from a lease. We agree with the boards' proposal that the economic characteristics of leases take a variety of forms, and, therefore, different types of leases should be treated differently.
However, the boards’ decision to classify leases based on a principle of consumption is lessor-focused and is not relevant or intuitive for many lessees. Moreover, classifying leases based on whether or not the underlying asset is 'property' is not neutral, and may not be useful for many users. We should account for leases based on the substance of the transaction, not the nature of the underlying asset. We do not believe that the boards' proposed classification model substantively improves upon the current distinctions in IAS 17.
Accordingly, we propose incorporating IAS 17’s classification criteria into the standard, instead of the consumption principle. Using the current ‘dividing line’ in IAS 17 to classify leases would significantly reduce operational concerns, especially many of the operational difficulties relating to equipment leases that are economically similar to property leases, without sacrificing the boards’ principal objectives in terms of balance sheet recognition. We believe that this suggestion would be attractive to many constituents given its familiarity, is less complex and easier to implement for preparers, and would enhance the usefulness of information to users.