The FASB and the IASB (“the Boards”) held a joint meeting earlier this week to continue their discussions on the proposed changes to the lease accounting standard. The Boards made more progress and came to a number of tentative conclusions designed to simplify their 2013 proposal.
- The definition of a “lease modification” was made clearer, particularly as it relates to when a modification results in a separate new lease.
- The Boards decided that, where certain criteria exist, two or more leases that were entered into at or near the same time could be accounted for as a single transaction.
- The Boards discussed the issue of reassessment of index and rate based variable lease payments but came to different conclusions with the FASB requiring reassessment only when the lease liability is reassessed for other reasons but with the IASB requiring reassessment upon a change in contractual cash flow.
- The discount rate used to measure the lease assets and liabilities was changed to be defined as “the rate implicit in the lease”. However, if that rate is not determinable, then the incremental borrowing rate would be used.
The Boards did not discuss some of the issues that caused disagreement in their March meeting, such as the dual accounting model based upon the nature of the underlying asset. But the Boards are scheduled to discuss additional issues at their May and June meetings with the objective of narrowing the areas of disagreement and further reducing complexity. It is now relatively clear that a final standard will not be issued until 2015. But in the second half of 2014 we should have a much better sense of exactly what the final standard will contain. We will monitor the ongoing deliberations as we continue to develop the accounting component of iLeasePro to be compliant with the new standard.