May redeliberations

The FASB/IASB joint meeting on May 20-22, 2014, reached the following additional decisions for the new lease accounting standard, reviewing the Revised Exposure Draft (RED) and redeliberating on user reactions:

• Allocating consideration between lease and non-lease components should be based on observable standalone prices, if available, or the best estimate. If the lease term or an option is reassessed, the allocation should also be reassessed.

• Lessors may choose to make an accounting policy by class of underlying asset not to separate lease & non-lease components, and instead treat as a single lease component.

Other decisions were made basically reaffirming and clarifying the RED on the definition of a lease, separating lease and non-lease components (other than discussed above), and initial direct costs. Of note is the reaffirmation that initial direct costs include only incremental costs associated with starting a lease. Current US GAAP permits lessors to allocate overhead costs to a lease, which would now be prohibited.

For more details, see the FASB board meeting minutes or IAS Plus.

It's also worth noting that the boards on May 28 released the new converged standard on revenue recognition (RevRec). This standard will be referenced in the new lease accounting standard for some aspects of lessor accounting, as previously noted. It is also notable for its implementation schedule: required in 2017. Multiple observers of the boards think that the same implementation schedule will apply to leases, though obviously the final standard has not been released, and won't be for several months. The boards haven't yet posted a timetable for final release, but some observers think it will be this year.

On May 29, Hans Hoogervorst, chairman of the IASB, spoke to the IFRS Conference in Singapore. Among his comments, he said he expected to complete work on the lease accounting standard "in the next couple of months," while saying they're still looking at ways to make implementation less costly but suggesting that most companies will not be significantly affected.