The IASB and FASB met in April to discuss leasing. They reached a number of converged decisions. The highlights are:

  • Modifications – A lease modification is any change to the contractual terms that was not part of the original terms and conditions. The accounting will depend on the nature of the change. Specific guidance is provided to determine if modification is deemed to be a new lease. Substance of the modification should govern over form.
  • Contract combination – Contracts should be combined if they are negotiated as a package with a single commercial objective and consideration in one contract depends on the price or performance of the other.
  • Variable payments – These are included in the lease asset and liability at lease commencement if they vary based on an index or rate or are in substance fixed payments.
  • Discount rate – Several topics were discussed around the discount rate used to measure, at present value, the lessee's lease liability, lessor's lease receivable and residual asset (for Type A leases).

The Boards diverged on reassessment of variable lease payments. The IASB voted to require reassessment only when there is a contractual change in the cash flows (that is, when the adjustment to the lease payment takes effect). The FASB voted to require reassessment only when the lease liability is reassessed for other reasons.

Joint redeliberations will continue with the objective to maximise convergence but the IASB and FASB remain diverged on a number of key issues. See the IFRS News April 2014 'Leases – another nail in the coffin of convergence?'

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