AWG monitors and engages in policy discussions regarding accounting rules as they impact aircraft financing and leasing.
Accounting rules must reflect the economic realities of aircraft financing and leasing transactions. AWG seeks to promote that principle in connection with the development and interpretation of accounting rules.
AWG is assessing the new credit loss standard ASC 326 issued by the Financial Accounting Standards Board (‘FASB’) which will be effective on 1 January 2020. The outcome of these processes may impact the aviation sector.
In July 2018, the FASB issued an Accounting Standards update that simplifies transition requirements, and, for lessors, provides a practical expedient for the separation of non-lease components from lease components.
Specifically, the Accounting Standards update provides (i) an option to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in its financial statements, and (ii) a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are met.
The standard was exposed for public comment. AWG identified the following issues facing lessors when applying the Leases standard:
* Sales taxes and other similar taxes collected from lessees.
The guidance would permit lessors, as an accounting policy election, to not evaluate whether these taxes are costs of the lessor or costs of the lessee. Instead, the lessor would account for them as costs of the lessee and exclude the amounts from lease revenue and the associated expense.
* The guidance requires lessors to exclude those costs from variable payments, and, therefore, from variable (lease) revenue and the associated expense when the amount of those costs is not readily determinable by the lessor.
* Recognition of variable payments for contracts with lease and non-lease components. The guidance requires lessors to allocate (rather than recognize as currently required in the new Leases standard) certain variable payments to the lease and non-lease components when the changes in facts and circumstances on which the variable payment is based occur.