FASB Lease Project: Highlights from Recent Meetings
The Financial Accounting Standards Board (“FASB” or “the Board”) met on August 27, 2014 to deliberate the proposed lease
accounting standard project. Although this is a joint project with the International Accounting Standards Board
(“IASB”), this was a FASB only board meeting.
The Board discussed sale and leaseback transactions and tentatively
determined that a seller-lessee would utilize the guidance contained in the recently completed revenue recognition
project in order to determine whether a sale has occurred. Also, the Board clarified guidance for sale and leaseback
transactions that contain repurchase options and provided three specific conditions which must be met in order to
achieve sale accounting.
The Board also discussed the discount rate which entities that are not public business
entities (“PBEs”) might utilize to measure lease liabilities. The FASB decided that PBEs would be allowed to establish
an accounting policy to utilize the risk-free rate to measure lease liabilities but that policy election would have to
be applied to all leases.
For leverages leases, the Board reaffirmed its original decision to eliminate leveraged
lease accounting but also provided that leveraged leases in place at the time of the adoption of the new standard would
be grandfathered.
For related party lease transactions, the Board decided that lessees (and lessors) would
account for the leases utilizing the legally enforceable terms and conditions of the lease and would not have to
consider the economic substance of the lease.
The FASB and the IASB will continue to deliberate a few remaining
issues in future meetings before issuing a final standard.
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