Upload
dwain-bell
View
218
Download
0
Embed Size (px)
DESCRIPTION
Presentation of AOSSG Discussion Paper 1. Lessor accounting model 2. Contracts that represent purchases or sales of the underlying asset 3. Measurement of lease term and lease payments 4. Purchase options 5. Contracts with service and lease components 6. Investment properties 3
Citation preview
LeasesMr Andrew LeeAccounting Standards Council of SingaporeSeptember 30, 2010
Outline of the Agenda
Introduction Presentation of AOSSG Discussion Paper:
Key issues in ED Leases
Questions and Answers Discussion of key issues in Q1 to Q6
Other issues Conclusion
2
Presentation of AOSSG Discussion Paper
1. Lessor accounting model
2. Contracts that represent purchases or sales of the underlying asset
3. Measurement of lease term and lease payments
4. Purchase options
5. Contracts with service and lease components
6. Investment properties
3
Q1: Lessor accounting model
Single derecognition approach is generally preferred Better represents the economic substance of the
arrangement and is consistent with lessee accounting
Hybrid approach – retains a fine and artificial line and the consequential arbitrariness in lease accounting Need further clarification on the determination of “exposure
to significant risks and benefits” Need to address lease accounting for land and building
AOSSG recommendation: Adopt a single derecognition approach to reduce arbitrary judgement
4
Q2: Contracts that represent purchases or sales of the underlying asset (“in-substance purchases or sales”)
Mixed views: Some view that it is not necessary to scope out accounting for
in-substance purchases/sales from the leases standard, while others are agreeable to the scope exclusion
Concerns: How to distinguish between “all but trivial amount of risks
and benefits” (for in-substance sales) and “significant risks or benefits” (for derecognition approach)?
Criteria in paragraphs B9 and B10 in ED are inadequate and rule-based can result in arbitrary distinctions
“Control and all but trivial amount of risks and benefits” – to unify the principles in leases, revenue recognition and consolidation standards
5
Q2: Contracts that represent purchases or sales of the underlying asset (“in-substance purchases or sales”)
Concerns: Long-term leases of land with indefinite extension options:
do they qualify as in-substance purchases/sales? Otherwise to provide guidance for amortisation of right-of-use asset.
AOSSG recommendations: Scope exclusion for in-substance purchases/sales can be
removed to reduce complexity If scope exclusion in ED remains need to strengthen
criteria for distinguishing in-substance purchases/sales To unify the principles in leases, revenue recognition and
consolidation standards
6
Q3: Measurement of lease term and lease payments
Lease term: generally agree on “longest possible lease term that is more likely than not to occur” including effects of extension and termination options Reflects management’s intent and represents possible outcome
Lease payments: generally object to “expected outcome” technique “Expected outcome” technique complex to apply, and
requiring only a reasonable number of scenarios may be subject to abuse
AOSSG recommendation: Permit the use of “most likely” approach if more relevant and decision-useful (especially for single-item or small-portfolio situations)
7
Q4: Purchase options
Generally supportive that purchase options be accounted for only when exercised Purchase options are fundamentally different in substance
from renewal options Concerns that ED proposal might place undue emphasis
on legal form over substance AOSSG recommendation: Final standard to clarify that
it is the underlying characteristics of the lease option, rather than the terminology used, that should be assessed in the accounting for the lease option
8
Q5: Contracts with service and lease components
Generally agree that contracts with distinct service and lease components should be bifurcated
Generally disagree with the ED proposal in relation to contracts with no distinct components
AOSSG recommendation: Contracts with no distinct service and lease components should not be bifurcated If truly non-distinct components, bifurcation is not
possible Entire contract accounted for as a lease only if it has been
specifically assessed that the underlying substance of the entire arrangement meets the definition of a lease
9
Q6: Investment properties
Generally supportive of the scope exclusion for investment properties measured at fair value – more decision-useful information
Concerns on incomparability in accounting for leases using fair value and cost model
AOSSG recommendation: to scope out all investment properties from leases standard and address those issues under IAS 40
10
Questions and Answers
1. Lessor accounting model 2. Contracts that represent purchases or sales of the
underlying asset 3. Measurement of lease term and lease payments4. Purchase options 5. Contracts with service and lease components 6. Investment properties
11
Any other questions for discussion?
Conclusion
Summary of discussion Overall highly supportive of the general approach of the ED
proposals However high administrative burden and implementation
costs to preparers AOSSG recommendations support the use of principles-based
approaches which reflect the underlying substance of the contracts, and aim to reduce arbitrary judgement and complexity in application hence improving decision-usefulness
Allow ample time for implementation of changes to ensure smooth transition
12