This Dataline discusses the redeliberation decisions reached on the FASB and IASB's joint leasing project during their board meetings in January 2011 through April 2011. We also include PwC observations on the potential implications as well as examples on the application of the boards' decisions.
In August 2010, the FASB and IASB jointly issued an exposure draft of a proposed accounting standard for leases (the "ED"). Their proposals would change the accounting for lease transactions and have significant business implications. The boards have considered the extensive feedback they received that the ED was overly complex and, in some areas, inconsistent with the economics of the underlying transactions. Based on this feedback, the boards identified five key areas for discussion (the definition of a lease, lease term, contingent payments, profit and loss recognition patterns, and lessor accounting) along with additional areas that required redeliberations.
Recently, the boards made tentative decisions that would significantly change the proposals included in the ED in four of the five key areas. Decisions on the final key area—lessor accounting—are expected shortly. Additional tentative decisions have been reached on other aspects of the ED outside the five key areas. Many of the changes made during redeliberations are in direct response to comments made by preparers, investors and others, and will result in a less complexity in its application for preparers and better information for investors.
Once the boards complete their redeliberations, they will consider whether to re-expose the proposals. If re-exposure is not considered necessary, draft standards that incorporate the significant decisions made during redeliberations will be made available, likely in the third quarter of 2011. Both boards have indicated that they expect to issue a final standard by the end of 2011.