EFRAG: Report on the findings on the proposed simplifications to IASB ED Leases

14 April 2014

The report summarises the findings from a limited survey on the proposed simplifications to the accounting for lessees under IASB’s ED Leases. The limited survey was carried out by EFRAG in association with ANC, ASCG, FRC and OIC.

In February 2014, EFRAG and the National Standard Setters from France, Germany, Italy and the UK carried out a joint limited survey, in a form of a questionnaire.

The objective of the limited survey was to consult with European constituents in order to understand which areas of the ED's accounting model for lessees needed to be simplified the most and to assess the usefulness and workability of the simplifications contained in the IASB staff papers for discussion at the IASB meeting in March 2014. Subject to the limitations and constraints set forth in the report, the findings of the limited survey mainly indicated the following:

• All respondents except one considered that simplifications were needed on a broad and systematic basis.

• A majority of the respondents rated the classification of leases into Type-A and Type-B and the scope of the standard as the two primary areas in need of simplifications.

• A majority of respondents also considered that measurement, separation of components and the determination of the lease term warranted simplifications. Some respondents however observed that the issues of measurement or separation should be considered through a better definition of the scope rather than through specific exemptions. In their view, if the scope was appropriately defined these would be less important issues.

• The respondents did not identify major areas in need of simplifications other than the ones contained in the limited survey and based on the IASB re-deliberations.

• A majority of respondents indicated their preference for a single model for all leases and supported a single Type-A model. Some of these respondents considered that having a single model would reduce complexity and implementation costs. Some indicated that they could support a single type A model only to the extent that the distinction between leases and services was improved in the forthcoming standard. These respondents believed that the IASB should primarily work on this distinction to ensure that an appropriate standard is developed. In the absence of such improvement, these respondents indicated that a dual model based on IAS 17 criteria would lead to greater understandability.

• A few respondents argued that a single model would not reflect the economic differences that might exist between types of leases and, therefore, they opposed a single model.

• A few respondents, while supporting a single Type-A model for leases in general, were in favour of introducing an exception for leases of properties. These respondents were from industries with a significant number of property leases. On the other hand, opponents to the introduction of an exception for properties considered that:

(a) It would set a rule-based exception that would not be conceptually and economically sound;

(b) a dual model, even limited to properties, would not meet the objective of reducing complexity and cost;

(c) It might be difficult to define what a "property" is.

• A majority of respondents were in favour of a recognition exemption for non-core assets as the most efficient way to reduce complexity and implementation cost. They however acknowledged that defining which assets are ‘core’ or ‘non-core’ would be challenging in practice and some of them suggested that further guidance would be needed.

• A majority of respondents were in favour of extending the short-term exemption for lease terms of more than one year. In their opinion this extension would reduce the implementation costs. A few respondents suggested periods up to five years.

• Some respondents pointed out that limiting the short-term exemption to leases shorter than twelve months, might not suit all business cycles and business models. They therefore suggested to extend the exemption, and to combine it with an exemption for non-core assets. 

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