There has been much focus on the specific calculations required to comply with the proposed leasing standards. However, with the final standard expected to be issued in the fourth quarter of this year, financial statement preparers should also focus on the proposed disclosure requirements. The Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”) (collectively “the Boards”) are proposing both qualitative and quantitative disclosures that will be more extensive than the current requirements.
The qualitative disclosures required by the FASB include discussion about the general nature of the lease portfolio with focus on issues such as variable lease payments and the existence of options, residual value guarantees and the any restrictions or covenants imposed by the lease contracts. The FASB has also indicated that the lessee should disclose information about significant judgments and assumptions made in the lease accounting process. In another example of the lack of convergence between the Boards, the IASB is not providing specifics about the nature of qualitative disclosures. Qualitative disclosure is required by the IASB only to the extent of satisfying the overall lessee disclosure requirement.
There are also differences between the Boards with respect to quantitative disclosures. Much of this difference can be attributed to the different accounting models being proposed by the Boards. The FASB model requires certain quantitative disclosures to be provided separately for Type A and Type B leases. Since the IASB is proposing only one accounting model, no such separate disclosure is necessary.
The Boards would require disclosure of various classifications of lease related income and expense, namely, short-term lease expense (FASB), small-ticket lease expense (IASB), variable lease expense, sublease income and gain/loss on sale leaseback transactions. These disclosures should be available in the detail provided by the lessee’s general ledger system.
The Boards are also requiring a maturity analysis for lease liabilities and certain cash flow disclosures but the Boards are requiring this to be presented in different formats. In addition, the FASB requires disclosure of weighted average remaining lease term by lease type and weighted average discount rate for Type B leases.
We have yet to see the final standards; therefore, the disclosure requirements outlined above could change to some degree. Additionally, it will be helpful to see the example disclosures that will be included in the final standards. We at iLeasePro realize that financial statement preparers will want to use a technology tool that will provide as many of the disclosure requirements as possible. To that end, we are currently in the process of developing reports that will address the disclosure requirements.