The FASB and the IFRS Foundation have released their taxonomies for public comment.
The FASB’s proposed 2014 U.S. GAAP Financial Reporting Taxonomy, which was released in late August, contains updates for accounting standards and other recommended improvements. The taxonomy was released using the data-tagging technology XBRL, which the SEC now requires public companies to submit with their financial statement filings. Following the public comment period, which ends on October 31, the FASB expects to finalize and publish the taxonomy in early 2014. [For more information, read PwC’s Flashline, No. 2013-37.]
The IFRS Foundation’s exposure draft of its interim taxonomy for 2013 is a translation of IFRS into XBRL. It is an update to the 2013 Taxonomy annual release and includes various structural updates and improvements, such as amendments to reflect the IAS 36 (impairment of assets) amendments issued on May 29. Comments on the exposure draft are requested by November 11.
A large majority of comment letters submitted in response to the FASB’s and IASB’s proposed lease accounting standard have questioned whether the benefits of putting most leases on lessees’ balance sheets outweigh the costs.
In addition to putting substantially all leases on lessees’ balance sheets, the proposal creates a “dual model” for determining the income statement treatment for lessees and lessors. The proposal creates a presumption that most leases of property (e.g., real estate) will have a straight-line income statement impact and most leases of non-property (e.g., equipment) will have a front-loaded income statement impact. However, these presumptions can be overcome in certain situations.
Of the 268 comment letters, 212 did not support the proposal, 25 were supportive and 31 were neutral, according to a Journal of Accountancy article. The FASB's Investor Advisory Committee (IAC) declined to support the proposal, stating that it is not an improvement to current accounting. The IAC recommended that the boards increase disclosure requirements about leases rather than placing them on the balance sheet.
While PwC supports the core principle that an entity should recognize assets and liabilities arising from a lease, it has some reservations. “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,” according to a September 12 PwC comment letter.
“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,” the letter continues. “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.”
[For more information on the public comments on the lease accounting proposal, read PwC’s Dataline: Leases – The Great Divide: The new leases landscape.]