The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have been working towards a converged standard for accounting for leases that would bring most leases on-balance sheet.
The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have been working towards a converged standard for accounting for leases that would bring most leases on-balance sheet. This joint project was intended to replace the current lease accounting requirements under IFRS and U.S. GAAP. Accordingly, the IASB and the FASB issued a revised Exposure Draft (ED) on leases in May 2013 which proposed changes towards both lessee and lessor accounting. The boards received extensive feedback on their proposals, and have heard a broad range of views. Since March 2014, they have redeliberated on almost all aspects of the project.
In their March 2015 meeting, the IASB and the FASB decided to prepare non-converged ballot drafts of their new standards on lease accounting i.e. to proceed with different lease accounting models.
The IASB expects to issue the new Leases Standard (IFRS 16) in December 2015.
In its final meeting in October 2015, the IASB agreed on the effective date of the proposed standard. IFRS 16, would be effective for accounting periods beginning on or after 1 January 2019. An early adoption would be permitted, provided the company has adopted IFRS 15, Revenue from Contracts with Customers.
The FASB will discuss the effective date of its version of the standard in November 2015.
While deciding the effective date, the IASB took into consideration the comments of the respondents to the ED which stated that a significant period of time would be required between publication of the new standard and its effective date, due to the costs and complexities involved in the application of the proposals of the ED.
Additionally, the IASB also addressed five issues identified during the drafting process, namely:
The announcement reflects IASB’s recognition of the potential implementation challenges that are likely to be faced by preparers as they transition to this new standard, which is expected to bring in a fundamental shift in the way leases are accounted. If IASB meets its target to publish the Leases Standard by the end of 2015, then companies are expected to have three years’ time to prepare for its implementation.
In India, companies are transitioning to Indian Accounting Standard (Ind AS) 17, Leases which is based on the corresponding IFRS standard, IAS 17, Leases. While they transition to the new Ind AS reporting framework, Indian companies should also start assessing the impact of the proposed standard on leases on both their current leasing arrangements as well as the ones that would be entered into in future.
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