The Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”) (collectively “the Boards”) met earlier this week to continue deliberating their Joint Lease Accounting Project and specifically to discuss lessee disclosures. The Boards reaffirmed that the objective of lessee disclosures is to provide the financial statement users with sufficient information to assess the amount, timing and uncertainty of cash flows from lease obligations. As stated in their 2013 Exposure Draft (“2013 ED”), these disclosures would be provided in two ways, qualitative and quantitative.
Although the Boards agreed upon the objective of the disclosures, unfortunately they were unable to come to agreement on the specifics of the disclosure requirements. The FASB decided to retain virtually all of the qualitative disclosure requirements contained in the 2013 ED reaffirming very prescriptive and specific information. The IASB, however, decided that the lessees should disclose other information, in addition to quantitative disclosures, sufficient to meet the overall disclosure objective as discussed above.
The Boards also reached different decisions about the nature of the quantitative disclosure requirements. Much of these differences revert back to the fact that the FASB proposed accounting model would provide for two types of leases (Types A and B) based upon the length of the lease and the nature of the underlying asset. Therefore, the FASB quantitative disclosure requirements contain a number of provisions breaking out Type A and Type B lease information separately that is not pertinent to the IASB single accounting model. Both Boards would require a maturity analysis of lease liabilities but in different formats. Additionally, both Boards decided not to retain the 2013 ED proposal to disclose a reconciliation of opening and closing balances of lease liabilities. Both Boards agreed that the final accounting standard will include illustrative examples to demonstrate how the disclosure requirements might be met.
The FASB also decided that the lessee disclosure requirements would apply equally to both public and nonpublic business entities.
It is unfortunate that the Boards could not come to convergence on the lessee disclosures, particularly as it pertains to the qualitative disclosures. The fact that there are differences in the Boards’ accounting models necessarily leads to differences to the quantitative disclosures. However, all of this makes for a much more difficult implementation, especially for those business entities that must comply with both US GAAP and IFRS. It is also somewhat surprising and disappointing that the FASB would not provide some form of disclosure relief for nonpublic business entities. It should be noted that all of the Boards’ decisions to date are tentative and could change.
The Boards will continue their deliberations in future meetings, specifically addressing transition and effective date issues. A final standard is expected to be issued in the second half of 2015.