Dataline A look at current financial reporting issues - PwC

.9 In early 2011, the boards began redeliberations to address these concerns, the five
key areas discussed in paragraph 13 below, and other issues. In discussions over the past
18 months, the boards identified alternative approaches to reduce complexity and
address certain application issues. They also conducted extensive outreach with users
and preparers to understand the operationality and usefulness of their alternative
approaches.
.10 At their July 17, 2012 joint meeting, the boards substantially completed their
redeliberations and instructed their staffs to begin drafting a revised ED. The boards plan
to issue the revised ED by the end of November 2012 with a 120-day comment period.
However, the issuance may slip into early 2013.
.11 The difficulties encountered during the 18-month-long redeliberation process were
highlighted when the board members were asked whether they planned to present an
alternative view in the revised ED. Three of the seven FASB members and at least two of
the IASB members stated they may present alternative views. However, the stated
rationales for their alternative views are very different. The FASB members expressed
significant concerns about whether some of the core objectives of the project are met in
the revised ED. They question the overall cost/benefit proposition and whether the
revised proposals will provide financial statement users with useful information. Other
specific concerns include the accounting for variable lease payments, the effectiveness of
the proposed disclosures, and the interaction of lessor accounting with the proposed
revenue recognition model.
.12 In contrast, IASB members contemplating presenting an alternative view primarily
expressed concern about the conceptual merits of a dual, rather than single, lease
accounting approach being applied by both lessees and lessors.
The main details of the redeliberations
.13 The boards have reached tentative decisions in each of the five key areas described in
the table below. Many of their decisions significantly change the accounting in the initial
ED. In addition, the boards reached tentative decisions on other key areas (refer to the
appendix of this Dataline for further details).
Topic Initial ED Revised ED
Lessee
expense
recognition
pattern
A lessee should recognize
amortization of the right-of-use
asset (straight-line), and interest
on the liability to make lease
payments (effective interest rate).
The result is a front loading of
expense in the income statement.
Some lessees will apply an
expense recognition approach
similar to that proposed in the
initial ED; some will use an
approach that results in
straight-line lease expense.
Which recognition approach to
apply will depend on the level
of consumption of the
underlying asset. A practical
expedient will apply based on
the nature of the underlying
asset (property versus nonproperty,
such as equipment).
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