On Wednesday, January 21, 2015, the FASB and IASB boards had a very long meeting on leases. Here is the outcome of the meeting, as always, in plain English. The meeting focused on disclosure requirements (what should be included in company’s notes to the financial statements).
One of the most significant decisions was that the FASB decided not to provide any reliefs from the disclosure requirements for nonpublic business entities. Therefore, the lessee disclosure package is equally applicable to both public and nonpublic business entities.
-The boards decided to require the following disclosures:
1) Total Type A lease expense (remember that these are what we currently call capital leases). The expense from Type A leases will segregated between the expense from depreciation of the leased assets and the expense from interest on lease liabilities.
2) Type B lease expense (remember that these are what we currently call operating leases). There will be no segregation between expense from the asset and liability. They will be combined as “lease expense.”
3) Short term lease expense: Total expense for leases with terms between 2 months and one year. By this definition, leases of assets for less than one month, for instance – and this is an example they kept using throughout the meeting – hotel rooms, would be excluded from this disclosure.
4) Variable lease expense – Recall that only the known base rent amounts would be capitalized as liabilities. Variable payments will not. Be capitalized, however, those payments will be included in this disclosure.
5) Sublease income.
6) Cash paid for amounts included in the measurement of lease liabilities, segregated between operating and financing cash flows and between Type A and Type B leases.
7) Supplemental non-cash information on lease liabilities arising from obtaining ROU assets, segregated between Type A and Type B leases.
8) Weighted-average remaining lease term, disclosed separately for Type A and Type B leases.
9) Weighted-average discount rate for Type B leases as of the reporting date.
10) Gains and losses arising from sale and leaseback transactions.
There was a lot of talk about removing the maturity analysis of undiscounted lease liabilities (what we call the lease commitments disclosure), but in the end the FASB decided to keep it intact.The boards also decided to include some qualitative factors in the disclosures.
In my opinion, the most important of these disclosures is information about leases that have not yet commenced (recall that the lease liabilities and ROU assets are recorded on the commencement date, NOT the execution date).