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June 13, 2012

IASB, FASB reach lease accounting agreement

The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) have reached an agreement on lease accounting.

The standard setters agreed on an approach for accounting for lease expenses as part of their project to revise lease accounting in IFRSs and US GAAP. However, the boards have said the decisions reached so far are ‘preliminary’ and the joint exposure draft will be issued in the fourth quarter of this year.

The IASB and FASB began the leases project to address the widespread concern that many lease obligations currently are not recorded on the balance sheet and that the current accounting for lease transactions does not represent the economics of all lease transactions.

Previously the boards agreed that leases should be recorded on the balance sheet, but continued to discuss the classification and pattern of expenses in the income statement.

The decision reached by the standard setters this week is an approach in which some lease contracts would be accounted for using an approach similar to that proposed in the 2010 Leases exposure draft and some leases would be accounted for using an approach resulting in a straight-line lease expense.

“The boards carefully considered the diverse views of stakeholders about whether the income statement profile of all leases should be the same. On balance, we decided that leases that convey a relatively small percentage of the life or value of the leased asset should be recognised evenly over the lease term,” FASB chairman Leslie Seidman said.

IASB chairman Hans Hoogervorst said once the proposals have been issued for comment he expects the “important” convergence project to be completed during 2013.

 

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