Tentative Board Decisions
Tentative Board decisions are provided for those interested in following
the Board´s deliberations. All of the reported decisions are tentative and may
be changed at future Board meetings.
April 23, 2014 Joint FASB/IASB Videoconference Board
Meeting
Leases.
The FASB and the IASB (the Boards) continued redeliberating the proposals in the
May 2013 Exposure Draft, Leases, specifically discussing the following
topics: (1) lease modifications and contract combinations, (2) variable lease
payments, (3) in-substance fixed payments, and (4) discount rate.
Lease Modifications and Contract Combinations
The Boards decided
to define a lease modification as any change to the contractual terms and
conditions of a lease that was not part of the original terms and conditions of
the lease and that the substance of the modification should govern over its
form.
The Boards decided that both a lessee and a lessor should account
for a lease modification as a new lease, separate from the original lease, when
(1) the lease grants the lessee an additional right-of-use not included in the
original lease and (2) the additional right-of-use is priced commensurate with
its standalone price (in the context of that particular contract).
For
lease modifications that are not accounted for as separate new leases, the
Boards decided that:
- When a lease modification results in a change in the scope or
consideration of the lease, a lessee should remeasure the lease liability
using a discount rate determined at the effective date of the modification.
For modifications that increase the scope of, or change the consideration paid
for, the lease, the lessee should make a corresponding adjustment to the
right-of-use asset. For modifications that decrease the scope of the lease,
the lessee should decrease the carrying amount of the right-of-use asset to
reflect the partial or full termination of the lease and should recognize a
gain or a loss on a proportionate basis to the decrease in scope.
- A lessor should account for (a) modifications to a Type B lease as, in
effect, a new lease from the effective date of the modification, considering
any prepaid or accrued lease rentals relating to the original lease as part of
the lease payments for the modified lease and (b) modifications to a Type A
lease in accordance with IFRS 9, Financial Instruments (IFRS), or
Topic 310, Receivables (U.S. GAAP).
The Boards decided to include
contract combination guidance in the final leases standard, similar to that
which will be included in the forthcoming revenue recognition standard, that
would indicate when two or more contracts should be considered a single
transaction.
Variable Lease Payments
The Boards decided
that only variable lease payments that depend on an index or a rate should be
included in the initial measurement of lease assets and lease liabilities and
that an entity should measure those payments using the index or rate at lease
commencement.
The FASB decided that a lessee should reassess variable
lease payments that depend on an index or a rate only when the lessee remeasures
the lease liability for other reasons (for example, because of a reassessment of
the lease term).
The IASB decided that a lessee should reassess variable
lease payments that depend on an index or a rate when the lessee remeasures the
lease liability for other reasons (for example, because of a reassessment of the
lease term) and when there is a change in the cash flows resulting from
a change in the reference index or rate (that is, when an adjustment to the
lease payments takes effect).
The Boards decided that a lessor should not
be required to reassess variable lease payments that depend on an index or a
rate.
In-Substance Fixed Payments
The Boards decided (1)
to retain the principle that variable lease payments that are in-substance fixed
payments should be included in the definition of lease payments and provide
additional clarifying guidance and (2) to note in the Basis for Conclusions that
the concept that some variable lease payments are in-substance fixed payments
exists under current practice.
Discount Rate
With respect
to the determination of the discount rate, the Boards decided:
- To clarify in the implementation guidance what "value" refers to in the
definition of the lessee´s incremental borrowing rate, but otherwise make no
changes to the definition in the May 2013 Exposure Draft.
- To describe the rate the lessor charges the lessee as the rate implicit in
the lease, consistent with existing lessor guidance.
- To include initial direct costs of the lessor in determining the rate
implicit in the lease.
With respect to reassessment of the discount
rate, the Boards decided:
- To require a lessee to reassess the discount rate only when there is a
change to either the lease term or the assessment of whether the lessee is (or
is not) reasonably certain to exercise an option to purchase the underlying
asset.
- Not to require a lessor to reassess the discount rate.
Next
Steps
The Boards will continue their joint redeliberations of the
May 2013 Exposure Draft at a future Board meeting.