Accounting for non-exchange leases

The IPSASB published revised proposals for leases in the public sector. The proposed IPSAS is substantially aligned with IFRS 16 on Leases. Due to the alignment with IFRS 16, no specific guidance has been provided on public sector specific issues such as concessionary leases. The IPSASB issued a Request for Information (RFI), Concessionary Leases and Other Arrangements Similar to Leases to solicit views on the types of arrangements that exist and how they might need to be addressed.

The proposed IPSAS defines a lease as “a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration”. In the public sector, it is common for entities to enter into arrangements on a “non-exchange” basis, i.e. equal value is not directly exchanged between the parties to the arrangement. Similarly, lease arrangements may be entered into on “non-exchange” terms for entities to further a specific objective. Examples of non-exchange leases may include, but are not limited to, leases for nominal, reduced or zero consideration. Concessionary leases are non-exchange leases often entered into at below-market terms. Currently, there is no guidance on how to recognise and measure non-exchange leases.

The existing principles for non-exchange transactions require transactions to be measured at fair value, with the difference between the consideration and the fair value recognised as the non-exchange component or subsidy. Applying the same logic to non-exchange leases would require the lease to be recognised at fair value, and the difference between the fair value of the lease and the consideration payable (if any) recognised as the lease subsidy or concession. Do you believe this is appropriate, or would you use cost (if any)?

The IPSASB is aware that given the lack of guidance on non-exchange leases, practice may vary from jurisdiction to jurisdiction. 

Please share your views on the nature of concessionary leases and other arrangements similar to leases in your environment, and their current accounting.

Access the RFI by following this link.