Presentation on theme: "The views expressed in this presentation are those of the presenter, not necessarily those of the IASB or IFRS Foundation. International Financial Reporting."— Presentation transcript:
The views expressed in this presentation are those of the presenter, not necessarily those of the IASB or IFRS Foundation. International Financial Reporting Standards Revised Exposure Draft— Leases May 2013 This presentation has been prepared to help stakeholders understand the current status of the leases project of the FASB and the IASB. The views expressed in this presentation are those of the presenters. Official positions of the FASB and the IASB are reached only after extensive due process and deliberations.
Presenters for Today’s Webcast Darrel Scott, IASB member Patrina Buchanan, Technical Principal Sarah Geisman, Technical Manager 2
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Leases ED is Available The documents are available online at The comment period ends on 13 September 2013 Send comments electronically to the IASB website (www.ifrs.org) using the “Comment on a Proposal” pagewww.ifrs.org 4
5 Agenda Background Lessee accounting Lessor accounting Other aspects Next steps
6 Why a Leases project? Lessee Most assets and liabilities are off- balance-sheet Limited information about operating leases Lessor Lack of transparency about residual values Consistency with lessee proposals and revenue proposals $1.25 trillion of off-balance- sheet operating lease commitments for SEC registrants * * Estimate according to the 2005 SEC report on off-balance-sheet activities
How the proposals are an Improvement 7 How the proposals address the issues Existing accounting issues Most assets and liabilities are off- balance-sheet Insufficient disclosure about operating leases Lack of transparency about residual values of equipment and vehicles Recognition of lease assets and liabilities for all leases of more than 12 months Enhanced disclosure requirements Separately account for residual asset Enhanced disclosures about residual asset’s exposure to risk Greater transparency about leverage, assets used in operations, and cash flows Greater transparency about residual values How the proposals are an improvement Lessee Lessor
Proposed right-of-use model 8 LessorLessee Right-of-use asset Lease payments A lease contract conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration
Dual approach 9 Most equipment/ vehicles Most real estate Start of leaseEnd of lease Asset consumption not more than insignificant Asset consumption more than insignificant There is a wide spectrum of lease transactions with different economics
Lease classification test 10 Leases for equipment/vehicles are Type A leases unless Lease term is insignificant relative to total economic life of asset Present value of lease payments is insignificant relative to fair value of asset Leases for real estate are Type B leases unless Lease term is major part of remaining economic life of asset Present value of lease payments is substantially all of fair value of asset
Lessee accounting model 11 Most leases of equipment/ vehicles Right-of-use asset Lease liability Amortisation Interest expense Cash paid for principal and interest payments Most leases of real estate Right-of-use asset Lease liability Single lease expense on a straight-line basis Cash paid for lease payments Balance sheet Income statement Cash flow statement Type A Type B
Lessee disclosures Qualitative General description of leases Terms of: - variable lease payments -extension/termination options -residual value guarantees Restrictions and covenants Information about leases not yet commenced Quantitative Expense relating to variable lease payments Reconciliation of right-of- use asset by asset class Reconciliation of lease liability* Maturity analysis of undiscounted cash flows for each of first 5 years plus total thereafter Judgements & Risks Nature and extent of risks arising from leases Significant assumptions and judgement 12
Lessor accounting model 13 Most leases of equipment/ vehicle Lease receivable Residual asset Interest income and any profit on the lease Cash received Most leases of property Continue to recognise underlying asset Lease income, typically on a straight-line basis Cash received Balance sheet Income statement Cash flow statement Type A Type B
Lessor disclosures Qualitative General description of leases Terms of: -variable lease payments -extension/termination options -purchase options Quantitative Reconciliation of lease receivable and residual asset Table of lease income Maturity analysis undiscounted cash flows for each of first 5 years plus total thereafter Carrying amount of residual assets covered by residual value guarantees Judgements & Risks Nature and extent of risks arising from leases Significant assumptions and judgement Risk management for residual assets 14
Reducing Cost and Complexity in Response to Feedback on the 2010 ED 15 Short-term leases Option to exclude leases with a maximum term of 12 months or less Variable lease payments Excluded if payments are not linked to an index or a rate Renewal options Excluded unless significant economic incentive to exercise the option
Next steps 16 Revised ED- May 2013; Comment period ends- 13 September 2013 Outreach- May through October 2013 Redeliberations- beginning Q Final standard and effective date- TBD
Questions and Answers 17
Questions and Answers 18 if readers already make an adjustment why is the change needed?
Questions and Answers 19 can you explain the difference between the 'right of use' vs 'the right to control the use' definition of a lease and where you see the change in scope impacting current lease arrangements?
Questions and Answers 20 Has the Board considered the issue of owned assets where parts of the whole asset are depreciated at different rates where they have different useful economic lives. How can this be applied to Type A right of use assets, or the previous 'finance leased assets' which in theory should have an amortisation profile similar to a purchased asset?
Questions and Answers 21 what is ´more than insignificant´? It was promised more guidance would be included in the new Exposure Draft?
Questions and Answers 22 Commercial lease agreements in real estate in EMEA are normally subject to at least an annual indexationbased on defined price indices. Will the lessee have to forecast the increase to account for it?
Questions and Answers 23 Anymore guidance on "significant economic incentive" to be applied for assessing the renewal of options?
Questions and Answers 24 Can you provide rationale for the proposed treatment of "deferred profit" for lessor’s R&R model?
Questions and Answers 25 Do lessors who elected the short-term lease exception need to derecognise the underlying asset at the commencement date?
Questions and Answers 26 What happens if you are under a Lessor model and the underlying asset is normally amortised under the unit of production method?
Questions and Answers 27 Does the lessee include interest rate from the lessor or their own internal borrowing rate?
Questions and Answers 28 If lessor is of a type B lease do you have to derecognise the asset - you mentioned short term leases but not all type b
Questions and Answers 29 Do you expect a difference in identifying whether an arrangement contains or is a lease as under the current IFRIC 4?
Questions and Answers 30 equipment/vehicles...will they be defined?
Questions and Answers 31 Has the risk that the option to exclude short term leases with a maximum term of 12 months will lead to lease structuring opportunities to avoid the accounting required by the proposed standard been considered by the Board?
Questions and Answers 32 How do you expect these proposals to feed into SME accounting
Questions and Answers 33 Which effective date can be expected in the new standard?
Questions and Answers 34 What are the proposals for the treatment of subleases?
Questions and Answers 35 We are lessor of containers to more than 200 customers around the world. Each customers have more than 20 lease contracts. How does the ED expect us to disclose all contract terms in the audited accounts ? Thanks a lot
Questions and Answers 36 On renewal options, there is an opportunity to leave these out if "does not show incentive" for lessee to exercise. Is there a threshold for this, dollar amount for or definition of incentive?
Questions and Answers 37 Please elaborate on impairment test for lease receivable and residual asset.
Questions and Answers 38 Are there any guidelines on Type B for real estate long leases - eg. 99 year leases. Will these be treated more like owned properties?