In July 2011, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) resolved their differences on lessor accounting. In addition, they agreed to re-expose the lease proposal as a result of the changes made since the exposure draft in August 2010. No specific announcement as to the time has been made, but it is anticipated that the revised exposure draft will be issued later this year; with the final statement not likely to be released until 2012.
Based upon the Boards’ recent discussions, lessors would apply one approach called the receivable and residual model to all leases except leases on investment properties accounted for at fair value, and short term leases as defined as those with terms of 12 months or less.
Under the receivable and residual model, the lessor would derecognize the underlying asset, recognize a lease receivable, and recognize a residual asset. Over the lease term, the lessor would recognize interest income on the lease receivable and income on the accretion of the residual asset.
Although this approach certainly has its critics, it is consistent with the revenue recognition threshold in the revenue recognition exposure draft.
We will continue to update you on further developments.