A new standard on leases approved by the IPSASB

The International Public Sector Accounting Standards Board (IPSASB) approved IPSAS 43 on Leases at its December 2021 meeting. IPSAS 43 replaces IPSAS 13 on Leases for financial periods commencing on or after 1 January 2025.  IPSAS 43 is aligned with IFRS 16 on Leases.

What has changed from IPSAS 13?

Accounting by the lessee

Even though the accounting for an operating and finance lease has not changed under IPSAS 43 from a lessor’s perspective, a significant change was made to the accounting from a lessee’s perspective.

IPSAS 43 eliminated the distinction between an operating and a finance lease for lessees by introducing a “right-of-use” model replacing the “risks and rewards” model in IPSAS 13 .

Under the new model, the lessee is required to recognise a right-of-use asset and a lease liability based on the discounted payments required under the lease, taking into account the lease term as determined under IPSAS 43. The right-of-use asset is a “leased asset”  representing the right to use the leased item for the lease term. Determining the lease term will require a  high degree of judgement.

New recognition exemptions

IPSAS 43 introduced new recognition exemptions for a lesser. In terms of the new requirements, a lessee may elect not to recognise an asset and a liability for a lease with a lease term of twelve months or less or when the underlying asset is of low value.

An underlying asset is of low value only if (a) the lessee can benefit from the use of the underlying asset on its own, or together with other resources that are readily available to the lessee, and (b) the underlying asset is not highly dependent on, or highly interrelated with other assets.

Assessing if an underlying asset is of low value is not affected by the size, the nature, or the lessee’s circumstances. 

How will the IPSASB address public  sector-specific lease issues?

Phase one of the IPSASB’s leases project involved the accounting for leases that are entirely within the scope of IFRS 16. IPSAS 43 was issued as this part of the project.

The IPSASB’s leases project’s next phase will address public  sector-specific  issues for other lease-type arrangements.  This includes concessionary leases and public sector arrangements that provide other  rights over assets in the lease arrangement.

The IPSASB issued a Request for Information during 2021 to obtain comment and input from stakeholders on the characteristics of these public  sector-specific arrangements. Input was also requested on how entities accounted for these arrangements. The IPSASB plans to issue an Exposure Draft for this  project phase in September 2022.

Disclaimer

The article has been prepared by the Secretariat of the ASB for information purposes only. It has not been reviewed, approved, or otherwise acted on by the Board.