During March 2014, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) (together the "Boards") resumed discussions on the joint project on accounting for leases. Several tentative decisions were reached that impact the direction of the project, which we previously discussed in MHM Messenger 2010-04, MHM Messenger 2013-15 and the September 2013 FAQ on the proposal. The discussions have resulted in greater diversity in opinions by the FASB and IASB on lessee and lessor accounting, making it less likely the final standards issued by the Boards will be fully converged.

1. our roots rundeepTM
Mayer Hoffman McCann P.C. – An Independent CPA Firm
A publication of the Professional Standards Group
MHMMessenger
© 2 0 1 4 M ay e r H o f f m a n M c C a n n P. C . 877-887-1090 • www.mhmcpa.com • All rights reserved.
TM
During March 2014, the Financial Accounting
Standards Board (FASB) and International Accounting
Standards Board (IASB) (together the “Boards”)
resumed discussions on the joint project on accounting
for leases. Several tentative decisions were reached
that impact the direction of the project, which we
previously discussed in MHM Messenger 2010-04,
MHM Messenger 2013-15 and the September 2013
FAQ on the proposal.
The discussions have resulted in greater diversity in
opinions by the FASB and IASB on lessee and lessor
accounting, making it less likely the final standards
issued by the Boards will be fully converged.
Board Discussion
Lessee Classification
The May 2013 exposure draft (Exposure Draft)
proposed two models for the classification of a lease.
“Type A” leases for most equipment or vehicles that
require capitalization of a right-of-use asset and
recognition of a lease liability would require income
statement recognition similar to a capital lease in
existing literature (interest expense and depreciation
expense).“Type B” leases for property that requires
capitalization of a right-of-use asset and recognition
April 2014
Leasing Project Update
of a lease liability, which would require straight-
line income statement recognition of the expense,
presented in a single financial statement line item.
During the March 2014 joint meeting, the IASB voted
to support a “Type A” model for all leases. The FASB
decided to change the lease classification test to be
more in-line with current lease classification tests,
using the two lease models of Type A and Type B.
Lease Term
The term of a lease in the Exposure Draft would
include those options for renewal that had a significant
economic incentive, which had raised questions
about the consistency of the Exposure Draft with
existing U.S. GAAP, which uses the term “reasonably
assured.”
The IASB decided on a higher threshold for the
inclusion of an optional renewal than prposed in the
Exposure Draft and both Boards agreed that the
threshold should be a high standard. The Boards
voted to support requiring that the lease term should
only include those renewals that are reasonably
certain (similar to “reasonably assured” in existing
U.S. GAAP), thus aligning the Boards proposals with
existing GAAP.
The Boards also agreed that a lessee would reassess
the lease term only when significant events occurred
or circumstances changed that are caused by actions
of the lessee, while a lessor would not reassess the
lease term.

2. © 2 0 1 4 M ay e r H o f f m a n M c C a n n P. C . 877-887-1090 • www.mhmcpa.com • All rights reserved.
MHMMessenger
2
The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation.
Please contact your MHM auditor to further discuss the impact on your audit or audit report.
Short-term Leases
The Boards voted to retain the provision in the
Exposure Draft to exempt leases with a term of less
than 12 months. Similar to the lease term discussion
above, the term of a shot-term lease would exclude
optional renewals unless they were reasonably certain
to be exercised.
Small-ticket Items
The Boards generally agreed that there should not
be an explicit materiality threshold for the accounting
for leases, but that using a portfolio approach would
be acceptable. The IASB went further than the FASB
in supporting the inclusion of an explicit provision
permitting a portfolio approach and an explicit
recognition exemption for small ticket leases.
The majority of the FASB members indicated they did
not believe explicit permission for using a portfolio
approach was required and were concerned the
inclusion of such a provision would establish a
precedent that a portfolio approach can be used
in other areas of U.S. GAAP only when explicitly
permitted. In addition, the FASB did not support an
explicit exemption for small leases, but additional
research will be conducted by the FASB and IASB
staff on the impact of such a provision in the U.S. for
the FASB to discuss at a later date.
Lessor Model
Two approaches were supported by the Boards for
lessor accounting. Approach 1 establishes a “Type A”
or “Type B” lease, where a Type A is distinguished
as those leases that are effectively a financing or a
sale, as determined based on whether substantially
all the risks and rewards incidental to ownership of
the underlying asset are transferred by the lease
arrangement. Approach 2 uses the same Type A and
Type B leases, however precludes recognition of a
selling profit and revenue for any Type A lease that
does not transfer control of the underlying asset to
the lessee.
Approach 2 is considered to be consistent with the
upcoming revenue recognition and was supported by
the FASB. Approach 1 was supported by the IASB;
however, the IASB will continue to consider the matter
before finalizing a decision.
In addition, the Boards eliminated the receivable and
residual approach contained in the Exposure Draft
for Type A leases. Rather, the lessor will apply lease
accounting similar to current U.S. sales-type and
direct finance lease accounting.
What to Watch for
The FASB and IASB staffs are continuing their
research on the project and the Boards are expected
to continue joint deliberations during the remainder of
2014. Expect further discussion on the treatment of
small-ticket items as well as other questions raised
in the 2013 Exposure Draft. The Boards have not yet
announced a target date for the issuance of a final
standard.
For More Information
If you have any specific questions, comments or
concerns, please share them with James Comito or
Hal Hunt of MHM’s Professional Standards Group
or your MHM service professional. You can reach
James at jcomito@cbiz.com or 858.795.2029 or Hal
at hhunt@cbiz.com or 913.234.1012.