Highlights of the March 2020 IPSASB meeting

The International Public Sector Accounting Standards Board (IPSASB) met in March 2020. One of the key decisions at the meeting was the future of the project on leases.

The IPSASB issued ED 64 on Leases in 2018. The issue of ED 64 was driven by the need to align existing IPSAS with IFRS 16 on Leases. IFRS 16:

• Introduces a “right-of-use model” for lessees. This means that lessees should recognise their right to use an asset for the lease period along with a corresponding liability to make payments to the lessor.
• Retains the operating and finance lease distinction for lessors.

The IPSASB decided to introduce the “right-of-use model” for both lessees and lessors in ED 64. From a lessor perspective, this meant continuing to recognise the underlying (leased) asset; and recognising a receivable for the right to receive cash over the period and a corresponding liability to make the asset available over the lease period.

Respondents to ED 64 had mixed views about introducing the right-of-use model for lessors. Key concerns expressed related to (a) the rationale for departing from IFRS 16, i.e. whether leases are different in the public sector and questioning why the IFRS 16 approach to lessors would be inappropriate, and (b) retaining the underlying asset, without any modification to its recognition or measurement, and recognising a receivable results in double-counting of assets. Where respondents supported the right-of-use model for lessors, concerns were raised about various aspects of the accounting.

Given the diversity of views expressed, the IPSASB identified criteria to assess how the project should be progressed. These criteria considered:

• The benefits to public financial management.
• Implementation costs and challenges.
• Alignment with Government Financial Statistics (GFS).
• The IPSASB’s Conceptual Framework, including whether the information needs of users are met.
• Alignment with IFRS.
• The feasibility of options available to complete the leases project.

Based on these factors, the IPSASB decided to revert to full alignment with IFRS 16, i.e. the right-of-use model for lessees and the operating-financing lease model for lessors Given the change in approach, the IPSASB will issue an Exposure Draft aligned to IFRS 16 for comment. The Exposure Draft is likely to be issued in the second half of the year.

A key component of the leases project and the proposals in ED 64 was the treatment of concessionary leases. The IPSASB has decided that it will deal with these leases in a separate project.
Highlights of the meeting will be available shortly on www.ipsasb.org.