Keeping accounting for sale and leaseback simple
May 2021
The International Accounting Standards Board (IASB) is proposing changes to how sale and leaseback transactions are measured under the international lease accounting standard, IFRS 16, which could increase complexity for users.
![IFRS visual](https://www.leaseurope.org/_flysystem/s3/styles/large_lqip/s3/2020-10/IFRS%2016.jpg?itok=_yNPcFlw)
What is being proposed for lease accounting?
Leaseurope responded to a consultation by the IASB on possible changes to how sale and leaseback transactions are measured under IFRS 16. The IASB has proposed requiring firms to estimate future variable lease payments, such as payments that are based on usage of an asset, as well as fixed rentals. This follows a growth in the use of property leases where rental payments are linked to the lessee’s income. The IASB is expected to release their final requirements after going through all the feedback received from stakeholders.
Leasing equipment is not the same as leasing real estate
During our engagement with the IASB on the new IFRS 16 standard, we had to remind them many times that an equipment or vehicle lease is very different to the lease of an airplane, with completely different business model and contract characteristics. Now, we are reminding the IASB about the very real differences between equipment and property leases and the need to ensure that rules designed for property leases do not penalise equipment leases. Although sale and leaseback arrangements including variable lease payments are not common in equipment leasing, they can be used in particular for service-type arrangements for vehicle fleets and some types of industrial equipment. We pointed out that attempting to estimate usage is likely to be complex and uncertain, often needing some form of modelling by industrial engineers or other specialists. We recommended keeping the existing approach of accounting for only fixed lease payments for equipment sale and leaseback agreements.