16 June 2015

EFRAG requests a public fatal flaw review of the forthcoming Leases Standard

The letter does not intend to reopen the issue generically, rather to consider it in the particular circumstances of the Leases standard. Indeed, the new Leases Standard will significantly change the existing accounting practice for lessees. Almost all entities reporting under IFRS will likely be affected and impacts may be very material. EFRAG notes that the IASB has put significant redrafting effort into the final standard, especially with respect to the definition, since the last public consultation. Significant judgment will be needed and unless entities are able to properly understand and apply the definition of a lease and the other requirements in the standard, there will be a significant and wasteful use of time debating possible interpretations, which will lead to a real risk of divergent application.

In relation to the timing concern, we note that the IASB intends to run a fatal flaw review anyhow; enlarging the scope of participants in the review does not add any step in the IASB due process and EFRAG doubts that a substantial delay automatically follows. Time spent before publication may well mean time saved after publication. Further, concerns such as these should not take precedence over ensuring that the final Standard is clear and unambiguous to the public at large.

Regarding the objective of the public review, EFRAG believes that the IASB can clearly communicate that opening the fatal flaw review process to the general public is not meant to be an additional consultation on the requirements of the Standard. EFRAG understands and does not challenge that the IASB has concluded that they have fully complied with their due process.

Press release

Full letter

© EFRAG - European Financial Reporting Advisory Group