On June 1, 2011, the FASB and IASB (the Boards) met to discuss the new proposed lease accounting guidance. The discussion on leases at this meeting focused primarily on subsequent measurement issues relating to lessees, including foreign exchange differences, impairment, revaluation and residual value guarantees.
The Boards tentatively reached the following decisions:
- Foreign Exchange Differences - That foreign exchange differences which relate to lease payment liability should be recognized in earnings, similar to existing foreign exchange guidance.
- Impairment - Affirmed to refer to the existing guidance relative to impairment of right-to-use assets.
- Revaluation - Affirmed to refer to the existing guidance relative to revaluation of right-to-use assets (IASB only).
- Residual Value Guarantees – 1) Amounts payable under residual value guarantees included in the measurement of the lessee’s right-of-use asset should be amortized consistently with how other payments included in the measurement of the right-of-use asset are amortized, 2) Amounts payable under residual value guarantees included in the measurement of the lessee’s lease payment liability should be reassessed when events or circumstances indicate that there has been a significant change in the amounts expected to be payable under residual value guarantees, and 3) Amount of the change to the lease payment liability to make lease payments arising from changes in estimates of residual value guarantees should be recognized in earnings to the extent those changes relate to current or prior periods and as an adjustment to the right-to-use asset to the extent those changes relate to future periods.
Stay tuned for more updates on the proposed lease accounting as we near a final standard.
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