The Financial Accounting Standards Board has decided to defer the development of a new accounting model for lessors, saying the project will now only address lessee accounting.
FASB also agreed with taking an overall approach to generally apply the finance lease model in International Accounting Standard 17, "Leases," adapted where necessary for all leases.
The move is the latest in a long-running project for the board in setting standards for lease accounting. As FASB moves toward convergence of U.S. generally accepted accounting principles with International Financial Reporting Standards, it is also trying to make sure any new standards it approves match up as much as possible with the international ones.
In the new lessee standards, FASB has decided to include options to extend or terminate the lease in the measurement of the right-of-use asset and the lease obligation based on the best estimate of the expected lease term. The board also agreed that contractual factors, non-contractual factors and business factors should be considered when determining the lease term.
The board decided to require lessees to include contingent rentals in the measurement of the right-of-use asset and the lease obligation based on their best estimate of expected lease payments.
FASB also decided that both the right-of-use asset and the lease obligation should be initially measured at the present value of the best estimate of expected lease payments for all leases. The board decided to require the best estimate of expected lease payments to be discounted using the lessee's secured incremental borrowing rate.
FASB members discussed the subsequent measurement of both the right-of-use asset and the lease obligation, but the board was not able to reach a decision. The board also discussed whether there should be criteria to distinguish between leases that are in-substance purchases and leases that are a right to use an asset, but it was not able to reach a decision on that matter either.
