The AASB has released an Exposure Draft ED 286 Amendments to Australian Accounting Standards – Right-of-Use Assets of Not-for-Profit Entities. The proposed Standard would provide a temporary option for not-for-profit lessees to measure right-of-use assets at initial recognition for leases that have significantly below-market terms and conditions principally to enable the entity to further its objectives (‘peppercorn leases’), either:
- at cost, in accordance with AASB 16 Leases paragraphs 23–25, which incorporates the amount of the initial measurement of the lease liability; or
- at fair value, in accordance with AASB 16 paragraph Aus25.1 (as proposed in this Exposure Draft to be amended).
The existing requirement is for not-for-profit entities to measure right-of-use assets at initial recognition at fair value for peppercorn leases when AASB 1058 Income of Not-for-Profit Entities and AASB 16 become effective in reporting periods beginning on or after 1 January 2019. The proposed temporary option would allow not-for-profit entities to continue their work on fair valuing right-of-use assets under peppercorn leases if they intend to measure the right-of-use assets at initial recognition at fair value.
The Exposure Draft also proposes additional disclosures to AASB 16 for not for profit entities that elect to measure the right-of-use assets at initial recognition at cost rather than at fair value. The additional disclosures would provide users of financial statements with further information about the peppercorn leases and the right-of-use assets in the absence of fair value information.
The proposed optional measurement approach will be reassessed by the AASB when further guidance has been developed to assist not for profit entities in fair valuing right-of-use assets and the financial reporting requirements for private sector not for profit entities have been finalised.
The Exposure Draft was open for comment until 7 December 2018. The final amending Standard is expected to be released before the end of 2018.
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