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.

July 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) sale and leaseback transactions and (2) lessor disclosure requirements.

Sale and Leaseback Transactions

Determining Whether a Sale Has Occurred

The Boards decided to retain the guidance in the 2013 Exposure Draft that in order for a sale to occur in the context of a sale and leaseback transaction, the sale must meet the requirements for a sale in the recently issued revenue recognition standard. The Boards reaffirmed that the presence of the leaseback does not, in isolation, preclude the seller-lessee from concluding that it has sold the underlying asset to the buyer-lessor.

The FASB decided that if the seller-lessee determines that the leaseback is a Type A lease, assessed from the seller-lessee’s perspective, then no sale has occurred.

The FASB decided to further evaluate (1) whether to include additional application guidance in the final leases standard regarding the determination of the sale and (2) the effect of repurchase options on sale and leaseback transactions, particularly call options exercisable at fair value.

The IASB decided not to include any additional application guidance in the final leases standard regarding the determination of the sale. The IASB clarified, however, that if the seller-lessee has a substantive repurchase option with respect to the underlying asset, then no sale has occurred.

Accounting for the Sale/Purchase

The Boards decided to retain the guidance in the 2013 Exposure Draft that a buyer-lessor should account for the purchase of the underlying asset consistent with the guidance that would apply to any other purchase of a nonfinancial asset (that is, without the presence of the leaseback).

The Boards decided to retain the guidance in the 2013 Exposure Draft that a seller-lessee should account for any loss on a completed sale in a sale and leaseback transaction consistent with the guidance that would apply to any other similar sale.

The FASB decided to retain the guidance in the 2013 Exposure Draft that a seller-lessee should account for any gain on a completed sale in a sale and leaseback transaction consistent with the guidance that would apply to any other similar sale.

The IASB decided that the gain recognized by a seller-lessee on a completed sale in a sale and leaseback transaction should be restricted to the amount of the gain that relates to the residual interest in the underlying asset at the end of the leaseback.

Accounting for the Leaseback

The Boards decided to retain the guidance in the 2013 Exposure Draft that if a sale is completed, the seller-lessee and the buyer-lessor should account for the leaseback in the same manner as any other lease.

Accounting for “Off-Market” Terms

The Boards decided that an entity should determine any potential “off-market” adjustment on the basis of the difference between either (1) the sale price and the fair value of the underlying asset or (2) the present value of the contractual lease payments and the present value of fair market value lease payments, whichever is more readily determinable.

For sale and leaseback transactions entered into at “off-market” terms, the Boards decided that an entity should account for:
  1. Any deficiency in the same manner as a prepayment of rent.
  2. Any excess as additional financing provided by the buyer-lessor to the seller-lessee.
Accounting for Failed Sale and Leaseback Transactions

The FASB decided to perform additional analysis on the accounting that should apply to “failed” sale and leaseback transactions.

The IASB decided to retain the guidance proposed in the 2013 Exposure Draft that both a seller-lessee and a buyer-lessor would account for a “failed” sale and leaseback transaction as a financing transaction.

Lessor Disclosure Requirements

The Boards decided that a lessor should be required to disclose:
  1. Information about the nature of its leases, as well as information about significant assumptions and judgments made in applying the leases requirements;
  2. A table of lease income during the reporting period; and
  3. Information about how a lessor manages its risk associated with the residual value of its leased assets.
The Boards decided that a lessor should treat assets subject to Type B leases as a class of property, plant, and equipment (IFRS) or a major class of depreciable assets (U.S. GAAP), further distinguished by significant class of underlying asset. Accordingly, a lessor should provide the required property, plant, and equipment disclosures for assets subject to Type B leases separately from owned assets held and used by the lessor.

The Boards also decided that a lessor should be required to disclose:
  1. For Type A leases, a maturity analysis of the undiscounted cash flows that comprise the lessor’s lease receivables for each of the first five years following the reporting date and a total of the amount for the remaining years thereafter. A lessor should reconcile the maturity analysis to the balance of lease receivables presented separately in the balance sheet or disclosed separately in the notes; and
  2. For Type B leases, a maturity analysis of the undiscounted future lease payments to be received for each of the first five years following the reporting date and a total of the amount for the remaining years thereafter.
The FASB decided that a lessor should be required to provide an explanation of the significant changes in the components of the net investment in Type A leases other than the lease receivable during the reporting period. The FASB will consider disclosures related to Type A lease receivables when it discusses disclosures in its project on accounting for financial instruments—credit impairment.

The IASB decided that a lessor should be required to provide a qualitative and quantitative explanation of the significant changes in the net investment in Type A leases during the reporting period.

Next Steps

The Boards will continue their redeliberations at a future Board meeting.