Accounting Term assignment
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DifferencesbetweenUSGAAPIFRSStandards-Leasing.pptxDifferences between US GAAP & IFRS Standards: Leasing
By: Carolina Wong
History of Leasing in US GAAP (since 2001)
2001 - The Enron Scandal took place causing the SEC to investigate accounting practices that could allow corporate fraud. At this point, the SEC discovered the off-balance sheet operating lease loophole.
2006- FASB began work on a new lease accounting standard intended to close the loophole of off-balance operating leases.
2009 - The FASB and IASB issued a Discussion Paper proposing that lessees capitalize all leases on the balance sheet.
2010 - The FASB and IASB issued an Exposure Draft and distributed it for public comments. The model set forth in the ED proposed that lessees move all leases onto the balance sheet as a right-of-use asset and liability.
2013 - The FASB and IASB issued a Revised Exposure Draft and opened a four-month comment period. After, the boards solidified parts of the standard, including that all leases would be brought onto the balance sheet, expense recognition models, and liability measurement.
2016 - The FASB published ASC-842, the new lease accounting standard for companies reporting under US GAAP. The IASB issued IFRS 16 the new lease accounting standard for companies reporting under the International Financial Reporting Standards.
2018 - The FASB issued an update to ASC 842 to both clarify and simplify the application of the new lease standard to land easements. The FASB also issued a proposal to ease companies’ transition to the new standard by offering a practical expedient that would allow companies to apply the transition provisions at the adoption date, instead of at the earliest comparative period. The proposal was approved in July of 2018.
Low-value asset exemption
US GAAP
There is no recognition exemption for leases based on the value of the underlying asset.
IFRS
Lessees may elect, on a lease-by-lease basis, not to recognize leases when the value of the underlying asset is low (e.g., US$5,000 or less when new).
Scope exemption for intangible assets
US GAAP
All leases of intangible assets are excluded from the scope of ASC 842.
IFRS
Lessees may apply IFRS 16 to leases of intangible assets other than rights held by a lessee under licensing agreements within the scope of IAS 38, Intangible Assets, for items such as motion picture films, video recordings, plays, manuscripts, patents and copyrights.
Lessors are required to apply IFRS 16 to leases of intangible assets, except for licenses of intellectual property that are in the scope of IFRS 15.
Lease liability reassessment of variable lease payments
US GAAP
Changes in variable lease payments based on an index or rate result in a remeasurement of the lease liability when the lease liability is remeasured for another reason (e.g., a change in the lease term).
IFRS
Changes in variable lease payments based on an index or rate result in a remeasurement of the lease liability whenever there is a change in the cash flows (i.e., when the adjustment to the lease payments takes effect).
Determination of the discount rate
US GAAP
Lessees and lessors determine the discount rate at the lease commencement date.
IFRS
Lessees determine the discount rate at lease commencement, but lessors determine the rate implicit in the lease at the lease inception date.
Determination of the discount rate
US GAAP
Lessees and lessors determine the discount rate at the lease commencement date.
IFRS
Lessees determine the discount rate at lease commencement, but lessors determine the rate implicit in the lease at the lease inception date.
Lessee & Lessor lease classification
US GAAP
Recognized leases are classified as either finance or operating. Lessees classify leases at the lease commencement date.
Leases are classified as operating, direct financing or sales-type leases at the lease commencement date.
IFRS
All recognized leases are accounted for similarly to finance leases under ASC 842.
Leases are classified as operating or finance leases at the inception date of the lease.
Lessee Accounting: Short-term leases — existence of a purchase option & change in lease term
US GAAP
A lease may not qualify as a short-term lease if it includes a purchase option that is reasonably certain to be exercised.
A lease no longer qualifies as a short-term lease when there is a change in a lessee’s assessment of either of the following:
The lease term so that, after the change, the remaining lease term extends more than 12 months from the end of the previously determined lease term
Whether the lessee is reasonably certain to exercise an option to purchase the underlying asset
IFRS
A lease may not qualify as a short-term lease if it includes a purchase option, regardless of whether the lessee is reasonably certain to exercise the option.
A change in the terms of a short-term lease creates a new lease. If that new lease has a lease term greater than 12 months, it cannot qualify as a short-term lease.
Lessor Accounting: Recognition of selling profit for direct financing leases
US GAAP
Selling profit on direct financing leases is deferred at lease commencement and amortized into income over the lease term.
IFRS
IFRS does not distinguish between sales-type and direct financing leases. Selling profit on finance leases is recognized at lease commencement.
Lessor Accounting: Recognition of selling profit for direct financing leases
US GAAP
Selling profit on direct financing leases is deferred at lease commencement and amortized into income over the lease term.
IFRS
IFRS does not distinguish between sales-type and direct financing leases. Selling profit on finance leases is recognized at lease commencement.
Lessor Accounting: Collectability
US GAAP
Collectability of the lease payments is assessed for purposes of initial recognition and measurement of sales-type leases. It is also evaluated to determine the income recognition pattern of operating leases.
IFRS
IFRS 16 does not include explicit guidance for considering collectability of lease payments.
Gain or loss recognition in sale and leaseback transactions
US GAAP
The seller-lessee recognizes any gain or loss, adjusted for off-market terms, immediately.
IFRS
The seller-lessee recognizes only the amount of any gain or loss, adjusted for off-market terms, that relates to the rights transferred to the buyer-lessor.
Leveraged leases
US GAAP
Leveraged lease accounting is eliminated for leases that commence on or after the effective date of ASC 842. However, leveraged leases that commenced prior to the effective date are grandfathered. If an existing leveraged lease is modified on or after the effective date, the lease would no longer be accounted for as a leveraged lease but would instead be accounted for under ASC 842.
IFRS
The seller-lessee recognizes only the amount of any gain or loss, adjusted for off-market terms, that relates to the rights transferred to the buyer-lessor.
