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March 1, 2012

FASB and IASB ‘disagree’ on leasing standards

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are divided over certain components of their leasing standards review.

The FASB and the IASB discussed different methods of amortising the right-of-use asset, in response to feedback received regarding the income statement effects. 

The two standard setters expressed support for two different approaches during a meeting in London this week as part of their project related to income statement changes for lessees.

The IASB supported a new approach and said the lessee should amortise the right-of-use asset based on the estimated consumption of the underlying leased asset over the lease term.

Consequently, the higher the consumption rate, the more the income statement effects would resemble those that would arise from purchasing the underlying asset and financing it separately. The lower the rate of consumption, the more the income statement effects would resemble the rental expense pattern under current operating lease accounting.

The FASB said its view was consistent with the 2010 Leases Exposure Draft and the lessee should amortise the right-of-use asset on a systematic basis reflecting the pattern of consumption of expected future economic benefits for those leases for which substantially all of the risks and rewards of the underlying leased asset have been transferred to the lessee.

While for leases that do not transfer substantially all of the risks and rewards of the underlying leased asset, the lessee would use an amortisation approach resulting in recognising the total lease expense in a pattern that would typically resemble the rental expense pattern under current operating lease accounting.

Both the IASB and FASB are due to re-release the leasing exposure draft in Q2 this year.

 

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