The FASB and IASB jointly issued the initial leases exposure draft in August 2010 (the "initial ED"). A majority of the over 800 comment letters received raised significant concerns about the proposals. Redeliberations began in January 2011 and were substantially completed in July 2012. A "revised ED" is planned for the end of November 2012 (although this may slip into early 2013), with a 120-day comment period. Three FASB members and two of the IASB members stated they may present alternative views in the revised ED.
The revised ED will retain the previously proposed "right of use" concept, and lessees would reflect all leases (except certain short term leases) on the balance sheet. Some lessors will derecognize the underlying leased asset, but others will continue to include it on the balance sheet. The revised ED will also propose a number of other changes to existing recognition, measurement, presentation, and disclosure guidance.
The most significant changes to the initial ED will include: a dual model for lessees and lessors; a higher threshold for including extension options when measuring lease assets and liabilities; simplified treatment of many types of variable lease payments; and new guidance on applying the concepts of "specified asset" and "control" when determining whether a contract contains a lease.
The revised ED will allow entities to apply a full retrospective approach or to elect certain reliefs to reduce the transition burden. Preparers will need to apply the guidance to all leases existing as of the beginning of the earliest comparative period presented (i.e., no grandfathering).
Issuance of a final standard, although targeted for 2013, may slip into 2014. The effective date has yet to be discussed, but will likely not be before 2016.
This Dataline looks at both the lessee and lessor proposed accounting models that will be included in the revised ED.