IPSASB Leases Project 1 Development of ED 64 Leases project is - - PowerPoint PPT Presentation

IPSASB Leases Project

1

Development of ED 64

• Leases project is convergence project with IFRS 16 on

Leases

• New requirements would replace IPSAS 13 on Leases

(which was based on IAS 17)

• ED 64 proposed the following:

– Convergence with IFRS 16 on lessee (ROU) accounting because there was no public sector issues warranting departure; – Departed from IFRS 16 on lessor (R&R), because of inconsistencies with the IPSASB’s Conceptual Framework and control based approach, also consistency in application in public sector; – Separate guidance on concessionary leases

• Comment deadline 30 June 2018

2

Proposed accounting: lessee

Lessee accounting will change significantly, except for short- term leases and low-value asset leases:

IPSAS 13 Proposed accounting Right-of-use asset Recognise underlying asset if finance lease Recognise right-of-use asset Lease liability Do not recognise lease liability if operating lease Recognise lease liability Short-term lease (=<12 months) No recognition exemption Recognition exemption: Account for lease as expense on straight line basis over lease term or

• ther system basis

Low-value underlying asset leases

3

Concessionary leases (Lessee)

Day 1

• Dr Right of use asset

R100

• Cr Liability

R60

• Cr Non-exchange revenue

R40 (Note: non-exchange revenue could be recognised immediately or deferred, depending on whether conditions exist in the arrangement which require deferral) After initial recognition

• If revenue recognised on day 1, no further revenue issues.

If deferred, recognise revenue when conditions satisfied.

4

Proposed accounting: lessor

Lessor accounting will change significantly, except for short- term leases:

IPSAS 13 Proposed accounting Underlying asset Derecognise underlying asset if finance lease Continue to recognise underlying asset Liability (unearned revenue) Do not recognise liability Recognise liability for unearned revenue Lease receivable Do not recognise lease receivable if operating lease Recognise lease receivable Short-term lease (=<12 months) No recognition exemption Recognition exemption: Account for lease as revenue on straight line basis over lease term or other system basis

5

Concessionary leases (lessor)

Day 1

• Dr Lease receivable

R60

• Dr Expense

R40

• Cr Unearned revenue

R100 After initial recognition Recognise revenue according to substance of lease contract:

• Dr Unearned revenue

XX

• Cr Lease revenue

XX

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Overview of responses

Source: IPSASB

33% 18% 46% 3%

ED 64 Lessor Accounting

Agree Partially Agree Disagree No Comment

• 7. IFRS 16 Lessor Accounting
• 6. Approach 2 (bundle of rights)
• 5. Extend IFRS 16 finance

lease to operating lease

• 4. IFRS 16 lessor accounting

as an additional step on top

• f ED 64 lessor accounting
• 3. Lessor model for all types
• f assets (IFRS 16 or other)
• 2. Retain the R&R model for

both lessors and lessees

• 1. Hybrid between ED 64

and Approach 2

0% 20% 40% 60% 80% 100%

Proposals for Lessor Accounting

“Lessor Accounting: A World Divided”

Proposals received

Source: IPSASB

The way forward

• Task Force was established to review responses and

recommend a way forward for the IPSASB;

• No consensus view on lessor accounting;
• At March 2020 meeting the Board will be requested to

decide on either full alignment with IFRS 16 or to continue with ED 64;

• Key issues → reputational risk (alignment vs departure),

conceptual vs practical solution and loss of underlying asset information;

• Public interest ? lessor should be held accountable for

the underlying asset and decisions made on how the asset is used (and by who);

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Technical Committee’s views on…

• Full alignment with IFRS 16?

– Will still need to provide guidance on concessionary leases (lessor and lessee);

• Continue with ED 64?

– Will need to consider measurement of underlying asset, either the transaction triggers impairment considerations or creates a requirement to use the revaluation model; – Consolidation and mixed group accounting complications;

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Annexure (for information purposes)

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Overview of responses

Reasons for not supporting departure Rationale for departure not strong enough (R04, R12, R25, R27, R28) Reasons to depart from IFRS 16 are not more prevalent in the public sector or different from the private sector (R04, R11, R12, R27, R33) Consolidation under ED 64 more difficult for public sector entities that apply IFRS (mixed groups) (R10, R12, R16, R25, R27) User information needs in the public sector do not significantly differ from those in the private sector (R10, R36)

Overview of responses

Reasons for not supporting lessor accounting There is double-counting of the underlying asset and the lease receivable (R04, R10, R11, R12, R16, R19, R23, R25, R27, R28, R29) The liability (unearned revenue) does not meet the definition of a liability (R10, R11, R16, R25, R27, R29) Inconsistent with the Conceptual Framework (R07, R25, R27, R36) The lease receivable is not a financial asset (R29, R31) Lessor transfers control (R07) of the resource and should derecognize the underlying asset in a finance lease (R10, R11, R28, R29, R33)