September 9, 2013

Japan Leasing Association (JLA)’s view on the revised exposure draft
JLA conducted a survey on the revised exposure draft leases (re-ED) issued by the International
Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB). The
purpose of the survey is to understand views on the re-ED from public companies and large
companies (9,226 companies) in Japan from the standpoint of lessee accounting. JLA received
views on the re-ED from 1,251 companies. “JLA’s basic view on lease accounting” and “JLA’s viewon the discussing points in the re-ED” include the result of the survey (many lessees’ opinions).
In addition, JLA also conducted another survey on lease accounting in which examinees are 50
users of financial statements by questionnaire and they are picked out considering the ratio andbalance of types of business of public companies into account. According to the result of thesurvey, the minority of respondents are supportive of the proposal by the boards that all the leases
should be recognized on lessees’ balance sheets, while the majority of the respondents view thatthe disclosures in the current standard should be improved or that the current standard has nodefects. Consequently, JLA views that the current standard should be retained with the disclosuresrequirements improved considering costs incurred by preparers of financial statements into
account because benefits arising from the proposals by the boards are limited, which is justified
by the result of the survey for users of financial statements.
The details of those surveys are attached to this comment letter.
 Summary of the survey (1) Lessee Accounting

According to the result of the survey, the majority of the respondents (companies) disagree to the lessee
accounting proposed in the re-ED, while the minority of the respondents agree the proposal.
(a)Disagree to the proposed lessee accounting (90.8%).

(b)Agree to the proposed lessee accounting (9.2%).

The respondents who disagreed to the proposal in the re-ED indicated the reasons for disagreeing to the
proposal as follows. Over 80% of respondents, who chose either (a) or (b) below, view that the current
standard should be retained. This implies that the respondents have strong concerns associated with costs
and burdensomeness if the proposed lessee accounting in the re-ED were implemented.
(a)

It is more reasonable to improve disclosures considering costs and practicability into account, if theinformation provided in the current standard is not sufficient (43.9%).

(b)

The current standard is appropriate (36.4%).

(c)

The off-balance sheet treatment is appropriate for a lease of property as required in the current standard (14.2%).

(d)

If operating leases are recognized on a lessee’s Balance Sheet (B/S), a straight line lease expense
recognition is appropriate regardless of the nature of the underlying asset (3.0%).

(e)Others (2.5%).

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The respondents who agreed to the proposal in the re-ED indicated the reasons for agreeing to the
proposals as follows. The respondents who totally agree with the proposal in the re-ED (i.e. therespondents who chose (b) below.) account for only 3.8% of all the respondents.
(a)

Recognizing all the leases on a lessee’s B/S is appropriate. However, it is agreeable to the proposedclassification of leases (for the purpose of lease expense recognition patterns) unless another expense
recognition is more appropriate (50.4%).

(b)

Recognizing all the leases on a lessee’s B/S is appropriate and the proposed lease expense
recognition patterns are also appropriate (41.6%).

(c)Others (8.0%).

Given the result of the survey, JLA proposes as follows.
<JLA’s basic view on lease accounting>
The revised exposure draft (re-ED) includes many defects and is extremely burdensome topreparers of financial statements.

The re-ED includes many defects and is not an improvement to the current lease accounting standard(IFRS and US GAAP). In addition, the proposals in the re-ED would be extremely burdensome topreparers of financial statements. →Points necessary to be discussed are as written below (seven points).
The proposed lessee accounting would reduce the usability of leases of assets other than property,
and would critically prevent entities from using leases.

Leasing is a useful tool for entities to acquire pieces of equipment and is made the best use of in eachcountry. Leasing has been playing an important role to contribute to economic development. The
proposed lessee accounting would deteriorate the usability of leases of equipment (assets other thanproperty) and would critically prevent entities from using leases of assets other than property. JLA would
not accept critical impacts, which would be caused by the proposals in re-ED, on the global economy andadvantages of leases.
IASB and FASB (the boards) should not implement a new lease accounting standard with defects
remained.

JLA understands the boards’ purpose to resolve the problem that leases similar to finance leases areaccounted for as operating leases. However, the boards should not issue a new lease accounting standard
with many defects remained.
The boards should focus on only improving disclosures, retaining the current standard.

Therefore, JLA proposes that what the boards should conduct is only to improve disclosures, retaining thecurrent standard from the standpoint of the balance between costs and benefits (i.e. information aboutmaterial property and assets other than property should be provided to users of financial statements in2

September 9, 2013

disclosures).
<JLA’s view on the discussing points in the re-ED>
1.

Differences between leases and services (JLA’s answer to the Question 1)
The bright line between leases and services (non-lease components) is still unclear andirrational because of the reasons below.
 The proposal in the re-ED would require a lessee to recognize only leases on its balance
sheet without clarifying differences between leases and service contracts which include
non-cancelable contractual term.
 According to the guideline to determine whether a contract includes a lease or not,similar contracts would be differently accounted for (i.e. some contracts as services andthe others as leases).
 Judgments made by preparers of financial statements might be different and thecomparability would be reduced because of the difficulty to determine whether acontract is a lease or service contract, or whether a contract includes a lease.
 A lessee would be required to account for an entire contract as a lease for the majority ofleases which include service components because the lessee would not be able topractically separate those components.

1.1 The boards concluded that a right and an obligation arising from a lease create an asset and liability
for the lessee, because the lessee acquires and controls a right to use the underlying asset and has an
obligation to make lease payments when the lessor delivers the underlying asset for use by the lessee.
In addition, the right and obligation are assumed to meet the definitions of assets and liabilities
according to the boards.
1.2 The boards also concluded that the nature of the rights and obligations arising at commencement ofa typical service contract is different from the nature of the rights and obligations arising at
commencement of a lease, because the customer does not obtain an asset that it controls at
commencement of the service contract. Consequently, the customer typically has an unconditional
obligation to pay only for the services provided to date.
1.3 If the boards conclude that a right and an obligation arising from a lease create an asset and liability
for the lessee (i.e. the lessee is required to recognize an asset and liability arising from a lease), theboards should clarify the reason that a customer is not required to recognize a right and an obligation
arising from a service contract that might create an asset and liability for the customer (especially, aservice contract where there is a non-cancelable contractual term.). If the boards consider whether
there are some service contracts which create an asset and liability for the customer and conclude
that some service contracts create assets and liabilities for the customer, the boards should clarify the3September 9, 2013

reason to justify that service contracts are accounted for differently from leases.
1.4 According to the proposal by the boards, a lessee would be required to determine whether a contractcontains a lease by assessing whether the fulfilment of the contract depends on the use of a specificasset and whether the contract conveys the right to control the use of the underlying asset to thelessee. For example, if a supplier has a substantive right to substitute the underlying asset, thecontract does not contain a lease. However, a contract where the supplier has a substantive right tosubstitute the underlying asset but the supplier will not be expected to do so is regarded as a contractthat does not include any lease. However, there is no any difference between that contract and acontract that is regarded as the one including a lease. In addition, according to the proposal by theboards, a contract would be incidental to the delivery of services if the customer can obtain thebenefits from use of the asset only in conjunction with additional goods or services that are provided
by the supplier and not sold separately by the supplier or other suppliers; and the underlying asset
was designed to function only with the additional goods or services provided by the supplier.
However, there is no any difference between that contract and a contract including a lease. Therefore,
contracts that have a similar nature would be accounted for differently (i.e. some would be classified
into services and others would be into leases.). Furthermore, there would be practical difficulties todetermine whether a contract is a lease or includes a lease, and judgments made by preparers offinancial statements might be different, which would reduce comparability of financial statements.
1.5 The proposal in the re-ED requires an entity to identify and account for a lease component and anon-lease component within the contract. The proposal also requires an entity to combine each ofcomponents as a single lease component if there are no observable stand-alone prices for any
components of the contract or if there are observable stand-alone prices for one or more, but not allof the components. Usually, lessees use leases for the purpose of not only financing but alsousability of leases, while lessors try to satisfy lessees’ needs by providing leases including additional
values. For example, lessors typically provide lessees with leases where the lessor pays fixed-asset
tax, insurance expenses associated with the underlying asset. In addition, a lessor provides the lessee
with an automobile lease where the lessor typically provides maintenance services associated withthe leased automobile. From the standpoint of practice, a lessee is unlikely to have an ability toallocate the consideration to each component of the contract and the lessee would account for thecontract, as a whole, as a single lease component (it seems that the purpose of accounting for acontract including both a lease component and service components as a single lease component was
mitigating costs and burdensome to lessees.). This implies that there would be an inconsistency
because some service components would be differently accounted for (i.e. some services arerecognized as assets and liabilities, while others are not.) depending on whether those services are
incidental to leases or not.
1.6 Because of the reasons listed above, the bright line between leases and services is still unclear and4

September 9, 2013

irrational.
2.

Lessee accounting (JLA’s answer to the Question 2)
For leases of assets other than property, where the amount of lease payments accounted for
as operating leases under the off-balance sheet treatment are immaterial, it is not meaningful
to require an entity to recognize assets and liabilities arising from those leases. The proposalby the boards would be extremely burdensome and costly to preparers of financial
statements and the costs incurred by the preparers of financial statements would outweighthe benefit for users of financial statements. JLA strongly opposes to the proposal by theboards that would reduce the usability of leases of assets other than property and would
prevent entities from using leases. In addition, it is irrational for the boards to propose thedepreciation method for type B, where the lessee recognizes depreciation as difference
between lease expense and interest, in order to realize a straight-line lease expense
recognition pattern. The depreciation method for type B is inconsistent with that for othernon-financial assets, although the depreciation method for the non-financial assets (i.e. PP&E)
reflects the pattern in which the entity expects to consume the non-financial asset’s future
economic benefits.

2.1 In Japan GAAP for leases, the off-balance treatment for finance leases was abolished in April 2008,
which made entities in Japan avoid using leases due to the complexity of the lease accounting after
the Japan GAAP was revised. However, lessors have been satisfying lessees’ needs by providing avariety of services incidental to leases because lessees use leases for the purpose of not only
financing but also usability of leases.
2.2 There is no criticism related to structuring operating leases that are similar to finance leases in Japan.
According to the disclosures by approximately 1,700 listed companies in the first section of theTokyo stock exchange, the total of remaining lease payments arising from non-cancelable operatingleases is approximately 17,000 billion yen, which accounts for only 1% of the remaining balance of
total assets of those companies. Furthermore, the majority of those operating leases are estimated tobe leases of property. The boards indicated that the majority of leases were classified as operatingleases in the re-ED. However, the boards should re-analyze what types of assets of leases areclassified as operating leases in each country, and should re-analyze whether the majority of leasesof assets other than property are classified as operating leases or not, and whether there is any needto require the current operating leases to be recognized on lessees’ balance sheets.
2.3 As written above, for leases of assets other than property, where the amount of lease payments
accounted for as operating leases under the off-balance sheet treatment are immaterial, it is notmeaningful to require an entity to recognize assets and liabilities arising from those leases. The

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proposal by the boards would be extremely burdensome and costly to preparers of financial
statements, and the costs incurred by preparers would clearly excess the benefits to users of financial
statements. As the result of the survey conducted by JLA, the majority of companies view that thecurrent standard should be retained because they have strong concerns related to costs andburdensomeness if the proposed lessee accounting in the re-ED were implemented. JLA strongly
opposes to the proposal by the boards that would reduce the usability of leases of assets other thanproperty, and would prevent entities from using leases.
2.4 JLA opposes to the classification principle based on the nature of the underlying asset (i.e. property
or assets other than property) because it would not faithfully reflect either the economic nature ofleases or lessors’ business models. In JLA’s view, the classification principle in the current standard
is more appropriate to classify leases. In addition, it is irrational for the boards to propose thedepreciation method for type B, where the lessee recognizes depreciation as difference between
lease expense and interest expense, in order to realize a straight-line lease expense recognition
pattern. The depreciation method for type B is inappropriate and inconsistent with that for othernon-financial assets, although the depreciation method for the non-financial assets (i.e. PP&E)
reflects the pattern in which the entity expects to consume the non-financial asset’s future economic
benefits.
2.5 If the boards were be able to justify the on-balance sheet treatment for some of operating leases
under the current standard and were to alternatively adopt a straight-line lease expense for those
operating leases, JLA believes that “undiscounted lease payments approach” would be appropriate.
In the “undiscounted lease payments approach”, a lessee would recognize a right-of-use asset andlease liability at undiscounted lease payments and would depreciate the right-of-use asset on astraight line basis over the lease term, while the lease liability would be amortized by the amount oflease payments in each period. Under the “undiscounted lease payments approach”, the amount oflease payment in each period and that of depreciation in each period would be same if the lease
payments are made evenly. The “undiscounted lease payments approach” proposed by JLA would be
the most simplified and practical solution for some operating leases to be recognized by lessees if
the boards’ goal is to realize a straight-line lease expense recognition pattern as required for thecurrent operating leases and the boards would not require a lessee to separately present depreciationand interest expense.
2.6 The majority of companies are much more supportive of the “undiscounted lease payments approach”
rather than the proposal by the boards, which is costly and burdensome to lessees, because thatapproach is more appropriate from the standpoint of costs, benefits and practicability. The“undiscounted lease payments approach” is superior to the proposal by the boards from thestandpoint of the rationale of depreciation method. In addition to this, there are some companies
which prefer to choose either the proposal in the re-ED or the “undiscounted lease payments

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approach”, and there are some which prefer another approach where the lessee apportions interest
component of lease payments over the lease term on a straight line basis.
 Summary of the survey (2) Recognition of lease expenses on a straight line basis<Recognition of lease expenses on a straight line basis>(a)Supportive of the “undiscounted lease payments approach” (78.6%).

(b)Supportive of the proposal in the re-ED (10.9%).

(c)Supportive of other approaches (10.5%).

<The reasons for being supportive of the “undiscounted lease payments approach”>(a)

The “undiscounted lease payments approach” is more appropriate to realize a straight line lease
expense recognition pattern (83.7%).

(b)

The proposed lessee accounting in the re-ED would not reflect the pattern in which the lessee
expects to consume the right-of-use asset’s future economic benefits. (12.6%).

(c)Others (3.7%).

<The reasons for being supportive of either proposal in the re-ED or another approach other than the“undiscounted lease payments approach” >(a)Prefer to be able to choose either the approach proposed in the re-ED or the “undiscounted
lease payments approach” (42.3%).

(b)

Prefer to apportion interest component of lease payments over the lease term on a straight line
basis (39.8%).

(c)

3.

Others (17.9%).

Lessor Accounting(JLA’s answer to the Question 3)

There is no need to change the current lessor accounting because of no criticisms pointed
out. The proposed lessor accounting for type A requires a lessor to separate a leasereceivable from a residual asset. However, the proposed requirement would be lessmeaningful and would be confusing to users of financial statements. In addition, theproposed lessor accounting would be also complex and burdensome to preparers offinancial statements. Therefore, the proposed lessor accounting is not an improvement of thecurrent lessor accounting.
3.1

As one of the reasons for changing the current lessor accounting, “consistency between the proposed
lessee accounting and the lessor accounting” is pointed out in the re-ED. However, if leases wereclassified into type A (almost all the leases of assets other than property) or type B (almost all theleases of property) in accordance with the proposal, the proposed lessor accounting for type B would
be inconsistent with the proposed lessee accounting because the proposed lessor accounting for type
B is similar to the current lessor accounting for operating leases. Therefore, it is not necessary forthe lessor accounting for type A to be consistent with the ROU model either.

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3.2 As one of the reasons for changing the current lessor accounting, “lack of transparency about
information of residual asset risks” is also pointed out in the re-ED. However, lessors should
depreciate underlying assets under the current operating leases and recognize lease incomes as
economic benefits earned as a result of consumption of the underlying asset as required in thecurrent standard regardless of whether the underlying asset is a property or not because the current
lessor accounting for operating leases represents the economic nature of leases classified as
operating leases more appropriately.
3.3 For the current finance leases, there is no materiality in residual assets and there is few difference
between the current accounting for finance leases and the proposed accounting for type A from thestandpoint of periodic profits and losses recognized by lessors. It is meaningless and complex torequire lessors to recognize residual assets separately from lease receivables.
3.4 In addition, because there are some RVGs that would be accounted for as lease receivables and other
RVGs that would be accounted for as residual assets, recognizing residual assets separately would
reduce the “transparency of residual assets” and would make users of financial statements confused.
3.5 There were two approaches for presentation of residual assets in the boards’ deliberation. One
approach was that residual assets should be presented separately from other assets because residual
assets did not share the same economic characteristics as similar assets that were not leased. The
other one was that residual assets should be presented similarly to the underlying assets that would
be presented immediately after the expiry of the lease because residual assets are the rights retainedin the underlying asset while the subject of a lease. This kind of discussing point arose from theboards’ decision to adopt an approach different from the approach in the current standard, although
the boards resulted in adopting the former approach. However, JLA notes that the discussing point of
the nature of a residual asset is still remained although the conclusion related to presentation ofresidual assets came out.
3.6 Consequently, the proposed lessor accounting for type A is not an improvement to the current lessor
accounting because there it is meaningless to require lessors to recognize residual assets separatelyfrom lease receivables and the proposed lessor accounting would be confusing to users of financial
statements. Furthermore, the proposed lessor accounting would be complex and costly to preparersof financial statements. This is why JLA notes that there is no need to change the current lessor
accounting, and the current lessor accounting has not been criticized.
4.

Classification of leases (JLA’s answer to the Question 4)
Classifying leases based on the nature of underlying asset (i.e. whether the underlying asset isproperty or not.) would not faithfully represent either the economics of leases or lessors’
business models. In addition, there would be subjectivity in determining which expense
recognition pattern should be applied to even among leases of assets other than property.

8September 9, 2013This would reduce comparability of financial statements and make users of financial
statements confused. If the boards were to adopt the principle to classify leases dependingon whether the lessee is expected to consume more than an insignificant portion of theeconomic benefits embedded in the underlying asset, the current principle to classify leases
based on whether a lessor transfers substantially all the risks and rewards incidental toownership of the underlying asset to the lessee would more appropriately represent theeconomics of leases.

4.1 In principle, the boards decided to classify leases based on whether the lessee is expected toconsume more than an insignificant portion of the economic benefits embedded in the underlying
asset. The decision’s intent was that the lessee determined which presentation pattern of lease
expense (i.e. a single lease expense or interest and depreciation of right-of-use asset) would be more
appropriate to represent the economic nature of the lease. However, the boards also decided to adopt
a practical expedient to classify leases based on the nature of underlying asset (i.e. whether theunderlying asset is property or not.) The rationale of the proposal by the boards is that property
typically has a relatively long life and a large proportion of the lease payments for property leases
relates to the land element inherent in property leases, while the majority of assets other thanproperty are depreciating assets and the lessee expects to consume more than an insignificant portionof the assets other than property.
4.2 However, it is irrational to classify leases and to differentiate leases of property from leases of assets
other than property on the basis of whether the economic life of the underlying asset is long or not orwhether a large proportion of the lease payments relates to the land element inherent in property
leases or not. There are some leases of assets other than property where the underlying asset isleased to multiple lessees one after another over the economic life of the asset, which is similar toleases of property. In those leases, the lease payments are not priced as explained in BC45 in the
re-ED. Furthermore, a lessor who is engaged in this kind of leases would be required to recognize
unintentional incomes at the commencement of the lease under the proposal in the re-ED. Therefore,
classifying leases on the basis of whether the underlying asset is property or not would not faithfully
represent lessors’ business models either.
4.3 According to the proposal by the boards, lessees would be required to present interest anddepreciation for the majority of leases of assets other than property even though the lease term ismuch shorter than the economic life of the underlying asset, while lessees would present a single
lease cost for leases of property, unless the lease term is a large portion of the remaining economic
life of the property. In addition, there would be subjectivity in determining which expense
recognition pattern (type A or type B) should be applied to even among leases of assets other thanproperty because there is neither guidance nor numerical threshold to determine leases of assets
other than property to which the type B lease expense recognition pattern is applicable. This would

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not faithfully represent the nature of each lease. The boards need to re-consider whether the proposal
for classification of leases would be an improvement to financial statements and whether the
proposal could reduce comparability of financial statements and make users of financial statements
confused.
4.4 As explained above, the classification of leases on the basis of whether the underlying asset isproperty or not would not faithfully represent either the nature of leases or lessors’ business models.
In addition, there would be subjectivity in determining which expense recognition pattern should beapplied to even among leases of assets other than property. This would reduce comparability offinancial statements and make users of financial statements confused. If the boards were to adopt the
principle to classify leases depending on whether the lessee is expected to consume more than an
insignificant portion of the economic benefits embedded in the underlying asset, the current
principle to classify leases based on whether a lessor transfers substantially all the risks and rewards
incidental to ownership of the underlying asset to the lessee would more appropriately represent theeconomics of leases.
5.

Lease term (JLA’s answer to the Question 5)
If the boards provide a threshold that is similar to the concepts of ‘reasonably assured’ and‘reasonably certain’ in existing US GAAP and IFRS, there is no need to change the current
threshold. It is more appropriate to only list the contractual, asset, entity and market-based
factors of “a significant economic incentive” as objective factors in the Basis for Conclusions
more clearly. In addition, the boards should not require any reassessment of lease term
where the costs outweigh benefits to users of financial statements and where thereassessment of the lease term would not represent the situation the entity is faced with inoptional terms.

5.1 If a lessee has a significant economic incentive to exercise an option to extend the lease, or not toexercise an option to terminate, the lessee and the lessor are required to determine the lease term as
the non-cancellable period plus periods covered by the options.
5.2 According to the survey conducted by JLA, the majority of companies disagree to the proposal formeasuring a lease term. One of the reasons is the difficulty of determining whether the lessee has asignificant economic incentive or not.
 Summary of the survey (3) Measurement of a lease term(a)Disagree to the proposal for measuring a lease term in the re-ED (89.3%).

(b)Agree to the proposals for measuring a lease term in the re-ED (10.7%).

<The reasons for disagreeing to the proposal by the boards>(a)

It is difficult to determine whether the lessee has a significant economic incentive or not (54.9%).

(b)Comparability of financial statements would be reduced because some uncertain options

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could be included in the lease term (22.9%).
(c)There is no any defect to the current standard (21.2%).

(d)Others (1.0%).

5.3 BC140 of the re-ED says, “the concept of ‘significant economic incentive’ would provide athreshold that is similar to the concepts of ‘reasonably assured’ and ‘reasonably certain’ in existing
US GAAP and IFRS” and “Requiring an economic incentive provides a threshold that can beapplied more easily because it is more objective than a threshold based solely on management’s
estimates or intent”.
5.4 However, it seems that the description in the re-ED itself would be insufficient to interpret that the
proposed threshold is similar to the current concepts of ‘reasonably assured’ and ‘reasonably certain’,
which has been proved by the survey by the JLA. In addition, it is difficult to practically apply thefactors specified in the re-ED to determine whether the lessee has a significant economic incentive
or not. Consequently, there might be possibility that a preparer of financial statements determines
the lease term that is different from the one in the current standard. This would reduce comparability
and would be confusing to users of financial statements.
5.5 In addition, it is set out in BC298 (description for a short term lease) that if entities are required toconsider whether the lessee has a significant economic incentive to extend the lease, that approach
would require entities to apply more judgement and, thus, would be more complex to apply.
Furthermore, BC140 sets out that the concepts of ‘reasonably assured’ and ‘reasonably certain’ inexisting US GAAP and IFRS, which the boards understand work well in practice. If so, there would
be no benefit arising from changing that current concept but there would be costs incurred by
preparers of financial statements. Retaining the current concept would also address the concern thatthe definition of a short term lease should be defined consistently with that of a lease term.
5.6 If the boards provide a threshold that is similar to the concepts of ‘reasonably assured’ and‘reasonably certain’ in existing US GAAP and IFRS, there is no need to change the current threshold.
It is more appropriate to only list the contractual, asset, entity and market-based factors of “asignificant economic incentive” as objective factors in the Basis for Conclusions more clearly.
5.7 In addition, an entity is required to reassess the lease term if the entity determines that it has asignificant economic incentive later than the commencement date of the lease in spite that it
determined that it had no significant economic incentive and vice versa.
5.8 However, it is meaningless and costly to require an entity to reassess the leases term when the entity
determines whether to exercise an option to extend or exterminate the lease just before or at the endof the lease term. It would be more appropriate to account for an extended lease term as if it is a newlease, when the contractual conditions (such as lease payments) in the initial term are different fromthose in the optional term. Therefore, the proposed reassessment of lease term would not always
provide useful information to users of financial statements.

11September 9, 2013

5.9 As explained above, the boards should not require any reassessment of lease term where the costs
outweigh the benefits to users of financial statements and where the reassessment of the lease term
would not represent the situation the entity is faced with in optional terms.
6.

Short term lease
A lease where the contractual lease term is one year and the amount of lease payments isimmaterial would not be classified as a short term lease, if the lease includes an option toextend the lease. An entity is not able to adopt the proposed practical expedient and isrequired to apply the complex accounting proposed by the boards to the one year leasewith an option, even if the entity determines that the lessee does not have a significant
economic incentive. The proposed practical expedient for a short term lease would not work
well for the purpose of mitigating the costs incurred by preparers of financial statements.
There is no need to exterminate the usability of the practical expedient in order to prevent
extremely and intentionally structured leases from being accounted as short term leases. In
addition, it is unclear how often leases are intentionally structured.

6.1 According to the survey conducted by JLA, the majority of companies disagree to the proposal forthe definition of a short term lease in the re-ED. If options to extend the lease are included indetermining the lease term, the proposed accounting for a short term lease could not be applied. Thisis one of the main reasons why the costs associated with applying the proposal by the boards would
increase.
 Summary of the survey (4) Accounting for a short term lease(a)Disagree to the proposed definition of a short term lease (78.5%).

(b)Agree to the proposed definition of a short term lease (21.5%).

<The reasons to disagree to the proposal>(a)

If options to extend the leases are included, there are few leases to which the proposed
accounting for a short term lease could be applied, which would be burdensome (60.5%).

(b)

The proposed accounting for a short term lease could not be applied to many leases, because
there are many leases where the non-cancelable lease term is more than one year, which
would be burdensome (37.3%).

(c)Others (2.2%).

6.2 For a lease of assets other than property where the non-cancelable lease term is 12 months or less,the amount of lease payments is generally immaterial and there is no any materiality on financial
statements at all. However, for one year lease where the lessee has an option to extend the lease foranother year in each year but has no significant economic incentive, the lessee would be required toaccount for that lease according to the complex accounting. On the other hand, a lessee would be
able to adopt the practical expedient to a lease if the lease includes no option to extend the lease12

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because the lease is classified as a short term lease.
6.3 A lease where there is no materiality and the lease term is one year or less would not be classified asa short term lease, if the lease includes an option to extend the lease. The lessee is not able to apply
the practical expedient to the lease even though the lessee does not have a significant economic
incentive. Therefore, the proposed practical expedient for a short term lease would not work well forthe purpose of mitigating the costs incurred by preparers of financial statements.
6.4 JLA understands the boards’ concern that short term leases might be intentionally structured.
However, it is extremely unlikely to structure a short term lease for an underlying asset whose
economic life is long, because of a lack of economic rationale (i.e. the lessor would be exposed tohigher residual asset risks than has been anticipated when pricing the contract.). For example, alessor prices a contract where the lessor assumes that the lessee will use the underlying asset for ten
years but the non-cancelable lease term is one year. In this case, the lessor would be exposed to theresidual asset risk for 9 years unless the lessee surely exercises an option to extend the lease (refer toBC110 in the re-ED.).
6.5 The concept of lease term (i.e. considering whether the lessee has a significant economic incentive)
should be also applied to the definition of a short term lease, although JLA proposes that theconcepts of ‘reasonably assured’ and ‘reasonably certain’ in existing standard should be applied tothe definition of lease term. The concern related to “intentionally structured short term leases” would
be solved by judgments made by preparers of financial statements and auditors. There is no need toexterminate the usability of the practical expedient in order to prevent extremely and intentionallystructured leases from being accounted as short term leases. In addition, it is unclear how often
leases are intentionally structured.
7.

Lease of a non-core asset
It is necessary to clarify that an entity is able to apply the proposed practical expedient for ashort term lease to a lease of a non-core asset from the standpoint of costs and benefits.

7.1 It is clear that costs incurred by preparers of financial statements would outweigh benefits to users offinancial statements if the proposed right-of-use model is applied to leases that are immaterial to theoperations of an entity.
7.2 The boards has concluded not to propose any distinction in accounting on the basis of whether theunderlying asset is core to an entity’s operations because of the difficulty to justify distinguishing aright-of-use asset relating to a core asset from one that relates to a non-core asset.
7.3 According to the survey conducted by JLA, the majority of companies disagree to the proposal that
there is no any practical relief for a lease of a non-core asset because the current operating leaseaccounting would be appropriate to a lease of non-core asset or because it would be difficult topractically cope with the requirements unless there is any practical relief for a lease of a non-core
asset in the lease accounting standard itself.

13

September 9, 2013

 Summary of the survey (5) Accounting for a lease of a non-core asset(a)Disagree to the proposal that there is no practical relief for a lease of a non-core asset (87.2%).

(b)Agree to the proposal that there is no practical relief for a lease of a non-core asset (12.8%).

<The reasons for disagreeing to the proposal by the boards>(a)

It is appropriate to apply the current operating lease accounting to a lease of a non-core asset (58.2%).

(b)

There would be practical difficulty without any practical relief for a lease of non-core asset inwhich an entity is able to determine whether the proposals should be applied to its leases basedon the materiality threshold set by the entity (40.9%).

(c)Others (0.8%)

7.4 On the other hand, BC405 says, “the IASB expects lessees to apply a similar materiality threshold toleases as it does to items of property, plant and equipment. This would result in a lessee not applying
the proposals to leases considered to be immaterial on a basis similar to that applied to items ofproperty, plant and equipment, whereby an entity does not capitalize the costs of purchasing items ofproperty, plant and equipment when that cost is less than a particular amount.”
7.5 According to BC405, a lessee would not recognize immaterial leases on its balance sheet. However,the proposals by the boards will be applied to leases where the amount of lease payments excesses acertain materiality threshold, even though those leases are immaterial to the operations of the entity
and to judgments made by users of financial statements. The costs incurred by the preparers would
clearly excess the benefits to users of financial statements.
7.6 Therefore, for leases of assets that are immaterial to the operations of an entity (leases of non-core
assets), it is appropriate to apply the proposed practical expedient for a short term lease from thestandpoint of costs and benefits. If the boards would not distinguish leases of core assets from onesof non-core, the proposed right-of-use model would be applied to all the leases given no flexible
adjustments made by accounting auditors.
<JLA’s view on other points in the re-ED>
8.

Discount rate

8.1 It would be difficult for a lessee to use the rate the lessor charges the lessee, and the lessee would be
likely to use lessee’s incremental borrowing rate. However, there is no incremental borrowing rateapplicable to leases similar to the current operating leases, in which the lessee would secure a loan
with not the underlying asset but the right-of-use asset. This would reduce the comparability offinancial statements.
9.

Residual value guarantees (RVGs)

9.1 There are many cases in which the lessee has little information about the amount payable under the14

September 9, 2013

RVGs at the commencement of the lease. Therefore, a lessee should include the maximum amountpayable under the RVGs in the lease payments when the lessee initially recognizes the right-of-use
asset and lease liability as required in the current standard. This alternative would be the bestsolution in practice.
9.2 According to the proposal by the boards, lease payments structured as RVGs would be included in
the lease receivable at the initial recognition from the standpoint of lessor accounting, while all theother RVGs would be recognized as residual assets. As noted above, JLA believes that it ismeaningless, costly, and confusing to users of financial statements to account for a lease receivable
separately from a residual asset. Therefore, JLA proposes that a lessor should include all the RVGs
in lease payments at the maximum amount under the RVGs when the lessor initially recognizes alease receivable as required in the current standard.
10. Sale and leaseback transaction

10.1 According to the proposal by the boards, a sale and leaseback transaction would be accounted for asa finance transaction if that sale and leaseback transaction was a lease classified as the current
finance lease because the transfer of the underlying asset is not a sale. However, it is not appropriate
to account for sales and leaseback transactions below, which are not finance transactions, as such.
a. A lessee purchases the underlying asset to be lease-backed in advance for reasons below.
When a lessee intends to lease many kinds of assets for its operation, the lessee purchases theassets from many dealers in advance because it is more reasonable and streamlined for not
the lessor but the lessee to do so from the standpoint of purchase prices and procedures. In
this case, the lessee does not recognize the purchased assets on its balance sheet.

It is more reasonable and streamlined for not the lessor but the lessee to import and purchasean underlying asset because the lessee has the know-how to import it.

When a lessee has an established relationship with a dealer, the lessee is able to purchase anunderlying asset at lower price than the lessor does.

b. A lessee leasebacks its own assets such as cars in order to streamline administration costs andburdensomeness associated with owing assets.
11. Sub-lease11.1 Under a sub-lease classified as the current finance lease, the contractual terms of the sub-lease arealmost identical to those of the head lease. The inter-mediate lessor intends to earn somecommission under the sub-lease. This kind of inter-mediate lessor works as an agent of the lessor of
the head lease. It would be extremely costly for the inter-mediate lessor to account for the sub-lease
both as a lessee and a lessor.
11.2 Therefore, this kind of inter-mediate lessor should recognize the difference between lease payments

15

September 9, 2013

payable to the lessor of the head lease and lease payments receivable from the lessee as commission,
recognizing both a lease receivable arising from the sub-lease and a lease liability arising from thehead lease instead of recognizing interest expense as a lessee and interest income as lessor. JLA
believes that this kind of practical relief should be applicable to that inter-mediate lessor, and that
relief would better reflect the economic nature of sub-lease.

16August 2013
Japan Leasing Association

Summary of survey conducted by JLA on the revised exposure draft Leases

PurposeTo broadly understand the views from preparers of financial statements on the revised
exposure Draft (re‐ED) issued by the IASB and the FASB.
Items
1. Lessee accounting
2. Straight‐line lease expense recognition
3. Measurement of a lease term
4. Accounting for a short term lease
5. Accounting for a lease of a non‐core asset
Companies surveyed & respondents
Companies surveyed

Respondents

Respondents/companies surveyed

Public companies

3,538

514

14.5%

Non‐public companies

5,688

737

13.0%

Total

9,226

1,251

13.6%

Summary
1. Lessee accounting<Do you agree to the proposal for lessee accounting?>

According to the result of the survey, the majority of the respondents disagree to the lessee accounting
proposed in the re‐ED, while the minority of the respondents agree.
Table1-1 Lessee accounting

Disagree
90.8%
0%

10%

20%

30%

40%

50%

1

Agree
9.2%

60%

70%

80%

90%

100%

August 2013
Japan Leasing Association

The respondents who disagreed to the proposal in the re‐ED indicated the reasons as follows. Over 80%
of respondents, who chose either (a) or (b) below, view that the current standard should be retained.
This implies that the respondents have strong concerns associated with costs and burdensomeness if the
proposed lessee accounting in the re‐ED were implemented.
Table1-2 The reasons for disagreeing to the proposal by the boards(a) It is more reasonable to improve the disclosuresconsidering costs & practicability into account if theinformation provided under the current standard is not
sufficient.

43.9%
36.4%

(b) The current lease standard is appropriate.
(c) The off‐balance sheet treatment is appropriate for alease of property as required in the current standard.

14.2%(d) If operating leases are recognized on a lessee's B/S, astraight‐line lease expense recognition is appropriate
regardless of the nature of the underlying asset.

3.0%
2.5%

(e) Others
0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

2. Straight-line lease expense recognition<Which approach do you agree to, either the proposed lease expense recognition pattern inwhich the lessee recognizes lease expense on a straight-line basis or “undiscounted lease
payments approach”?>

According to the survey, the majority of companies are much more supportive of the “undiscounted
lease payments approach” rather than the proposal by the boards.
Table 2-1 Straight-line expense recognition

supportive of theundiscounted lease
payments approach
78.6%

0%

10%

20%

30%

40%

supportive of supportive
the proposal of others
10.9%
10.5%

50%

60%

70%

80%

90%

100%

The reasons for being supportive of the “undiscounted lease payments approach” are as follows.
The undiscounted lease payments approach is more appropriate from the standpoint of costs, benefits
and practicability. The “undiscounted lease payments approach” is superior to the proposal by theboards from the standpoint of the rationale of depreciation method. In addition to this, there are somecompanies which prefer to choose either the proposal in the re‐ED or the “undiscounted lease payments
approach”, and there are some which prefer another approach where the lessee apportions interest
component of lease payments over the lease term on a straight line basis.

2

August 2013
Japan Leasing Association
Table 2-2 The reasons for being supportive of the undiscounted lease payments approach(a) The undiscounted lease payments approach ismore appropriate to realize a lessee’s straight‐line
expense recognition.

83.7%(b) The proposed lessee accounting in the re‐ED would
not faithfully reflect the pattern in which thelessee expects to consume the right‐of‐use asset’s
future economic benefits.

12.6%

3.7%

(c) Others
0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

3. Measurement of a lease term
<Do you agree to the proposed measurement of a lease term in the re-ED?>

According to the survey, the majority of companies disagree to the proposal for measuring a lease term.
Table 3-1 Measurement of lease term

Disagree
89.3%

0%

10%

20%

30%

40%

50%

Agree
10.7%

60%

70%

80%

90%

100%

One of the reasons is the difficulty of determining whether the lessee has a significant economic
incentive or not.
Table3-2 The reasons for disagreeing to the proposal by the boards(a) It is difficult to determine whether the lessee has asignificant economic incentive or not.

54.9%(b) Comparability of financial statements would be
reduced because some uncertain options could
be included in the lease term.

22.9%(c) There is no any defect to the current standard.

21.2%(d) Others

1.0%
0.0%

20.0%

3

40.0%

60.0%

August 2013
Japan Leasing Association

4. Accounting for a short term lease<Do you agree to the proposed accounting for a short term lease?>

According to the survey, the majority of companies disagree to the proposal for the definition of a shortterm lease in the re‐ED.
Table4-1 Accounting for a short term lease

Disagree
78.5%
0%

10%

20%

30%

40%

Agree
21.5%

50%

60%

70%

80%

90%

100%

One of the main reasons is as follows.
If options to extend the lease are included in determining the lease term, the proposed accounting for ashort term lease could not be applied. This is one of the main reasons why the costs associated with
applying the proposal by the boards would increase.
Table4-2 The reasons for disagreeing to the proposal by the boards(a) If options to extend the leases are included,
there are few leases to which the proposed
accounting for a short term lease could beapplied, which would be burdensome.

60.5%(b) The proposed accounting for a short termlease could not be applied to many leases,
because there are many leases where thenon‐cancelable lease term is more than one
year, which would be burdensome.

37.3%(c) Others

2.2%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

5. Accounting for a lease of a non-core asset<Do you agree to the proposal that there is no any distinction in accounting on the basis ofwhether the underlying asset is core to an entity’s operations?>

According to the survey, the majority of companies disagree to the proposal that there is no any practicalrelief for a lease of a non‐core asset.

4August 2013
Japan Leasing Association
Table5-1 Accounting for a lease of a non-core asset

Disagree
87.2%
0%

10%

20%

30%

40%

Agree
12.8%

50%

60%

70%

80%

90%

100%

The reasons are as follows.
The current operating lease accounting would be appropriate to a lease of non‐core asset.
It would be difficult to practically cope with the requirements without any practical relief for a lease of anon‐core asset in the lease accounting standard itself.
Table5-2 The reasons for disagreeing to the proposal by the boards(a) It is appropriate to apply the current operating leaseaccounting to a lease of a non‐core asset.

58.2%(b) There would be practical difficulties without any
practical relief in which an entity can determine
whether the proposals should be applied to its
leases based on the materiality threshold set by theentity in the standard.
(c) Others

40.9%

0.8%
0.0%

10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

5Survey on the revised exposure draft Leases
August 2013
Japan Leasing Association○ Japan Leasing Association (JLA) conducted a survey on the revised exposure draft leases (the re-ED)
issued by the International Accounting Standards Board (IASB) and the Financial AccountingStandards Board (FASB) in May 2013. The purpose of the survey is to understand views on the re-ED
from public companies and large companies in Japan from the standpoint of lessee accounting (thenumber of the companies which were surveyed is 9,226.).
○ More than 90% of the respondents disagree to the proposals by the Boards in the re-ED. Morethan 80%* of the respondents view that the current standard should be retained.
* The reasons to disagree to the proposals are as follows.
“It is more reasonable to improve the disclosures considering costs and practicability into account if
the information provided under the current standard is not sufficient.”“The current standard is appropriate.”○ For the on-balance sheet treatment of leases, about 80% of the respondents agree to that treatment
only if a lessee were allowed to recognize an asset and a liability at the undiscounted lease payments(undiscounted lease payments approach). For the proposal associated with measuring a lease term in
the re-ED, about 90% of the respondents disagree to that proposal. For the proposed short term leaseaccounting, about 80% of the respondents disagree to that proposal. For a lease of a non-core asset,
about 90% of the respondents disagree to the proposal that there is no any distinction in accounting on
the basis of whether the underlying asset is core to an entity’s operations. According to the result of
the survey, it has become clear that the majority of the respondents (companies) in Japan haveconcerns to the proposals in the re-ED.
Ⅰ Summary
1. Aim

JLA conducted the survey on the re-ED issued by the IASB and the FASB in May 2013 for the purpose of
 understanding the views from preparers of financial statements (Japanese lessees) broadly,
 including the views in JLA’s comment letter, and having the IASB and other standards setters understand the views.
2. Items
a. The proposed lessee accounting
b. Recognition of lease expenses on a straight line basis
c. Measurement of a lease termd. Accounting for a short term leasee. Accounting for a lease of a non-core asset

3. Method to conduct the survey

Questionnaires were sent to companies.

14. Scope of surveyed companies and respondents

The survey was conducted to all the public companies (3,538 companies) and large companies (5,688
companies). A large company is defined as a company whose capital is 500 million yen or more, or a company whose
liability is 20 billion yen or more. The number of companies within the scope is 9,226. The respondents account for
13.6% of all the companies surveyed.
Table; The number of companies surveyed and that of respondents
Companies surveyed

Respondents

Respondents/Companies surveyed

Public companies

3,538

514

14.5%

Non-public companies(Large companies)

5,688

737

13.0%

Total

9,226

1,251

13.6%

JLA’s member companies are not included. The companies surveyed cover almost all the public companies and large companies inJapan.
5. Period

From June 14, 2013 to July 16, 2013
6. Aggregation method

The number of the respondents is not same with that of valid respondents in each question because all the
respondents did not answer each of the questions.
Ⅱ Result of the survey
1. Lessee Accounting
Do you agree to the proposal for lessee accounting?

For the proposed lessee accounting in the revised exposure draft (the re-ED), the majority (90.8%) of the
respondents disagree to the proposal, while only 9.2% of the respondents agree (refer to Table 1-1).
Table1-1 Whether you agree to the proposed lessee accounting in the re-ED (the number of thevalid respondents 1,232)

Disagree
90.8%

0%

10%

20%

30%

40%

50%

2

Agree
9.2%

60%

70%

80%

90%

100%

<The reasons for disagreeing to the proposal>

43.9% of the respondents who disagree to the proposal view that it is more reasonable to improve the disclosuresconsidering costs and practicability into account if the information provided under the current standard is not sufficient.
36.4% of those respondents view that the current standard is appropriate.” Consequently, more than 80% of those
respondents view that the current standard should be retained.
14.2% of those respondents view that the off-balance sheet treatment is appropriate for a lease of property as
required in the current standard. 3.0% of those respondents view that a straight-line lease expense recognition patternis appropriate, regardless of whether the underlying asset is property or not (Refer to table 1-2).
Many of the respondents who answered “others (2.5%)” view that it is impossible to apply the proposal inpractice. In addition, some respondents have a concern associated with costs and benefits, and other respondents viewthat comparability would be reduced because of arbitrariness associated with measuring a lease term.
Table1-2 The reasons for disagreeing to the proposal by the boards (The number of valid respondents; 1,100)
It is more reasonable to improve the disclosuresconsidering costs & practicability into account if theinformation provided under the current standard is not
sufficient.

43.9%
36.4%

The current lease standard is appropriate.
The off‐balance sheet treatment is appropriate for alease of property as required in the current standard.

14.2%

If operating leases are recognized on a lessee's B/S, astraight‐line lease expense recognition is appropriate
regardless of the nature of the underlying asset.

3.0%
2.5%

Others
0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

<The reasons for agreeing to the proposal>

The respondents who agree to the proposed lessee accounting account for only 9.2% (113 companies) of all the
respondents. Some (50.4%) of those respondents view that it is appropriate to recognize all the leases in a lessee’sbalance sheet. However, it is agreeable to the proposed classification of leases for the purpose of lease expense
recognition patterns unless there are any forms of appropriate approaches to classify leases. In addition, some (41.6%)of those respondents view that recognizing all the leases on a lessee’s balance sheet is appropriate and the proposedclassification of leases for the purpose of lease expense recognition patterns is also appropriate (Refer to Table 1-3.).
The respondents who answered “others (8.0%)” include respondents who are reluctantly supportive of the
proposal. In addition, some required the boards to pay more attentions to practicability.

3

Table1-3 Reasons for agreeing to the proposal (the number of valid respondents; 113)
Recognizing all the leases on a lessee’s BS isappropriate. However, it is agreeable to the
proposed classification of leases unless anotherexpense recognition is more appropriate.

50.4%

Recognizing all the leases on a lessee’s BS isappropriate and the proposed lease expense
recognition patterns are also appropriate.

41.6%

8.0%

Others
0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2. Straight-line lease expense recognition<Which approach do you agree to, either the proposed lease expense recognition pattern in which thelessee recognizes lease expense on a straight-line basis or “undiscounted lease payments approach”?>

If the lessee’s ROU model were adopted, the majority (78.6%) of the respondents are supportive of the“undiscounted lease payments approach*2”, while the minority (10.9%) of the respondents are supportive of the
proposal in the re-ED and the others (10.5%) are supportive of other approaches to recognize lease expense (Refer toTable2-1.).
*2 Under the undiscounted lease payments approach, the lessee recognizes a ROU asset and lease liability at the undiscounted lease
payments. The lessee recognizes depreciation evenly over the lease term and amortizes lease liability at the amount of lease

payments in each period.
Table2-1 Straight-line lease expense recognition pattern (the number of valid respondents; 1,217)

supportive of theundiscounted lease
payments approach
78.6%

0%

10%

20%

30%

40%

supportive of supportive
the proposal of others
10.9%
10.5%

50%

60%

70%

80%

90%

100%

<The reasons for being supportive of the undiscounted lease payments approach>

The majority (83.7%) of the respondents who are supportive of the “undiscounted lease payments approach”
view that that approach is more appropriate than the proposed lease expense recognition patterns to realize a lessee’s
straight-line expense recognition. 12.6% of those respondents view that the proposed accounting in the re-ED would
not faithfully reflect the pattern in which the lessee expects to consume the right-of-use asset’s future economic
benefits (Refer to Table2-2.).
Many of the respondents who answered “others (3.7%)” indicate that the proposed lessee accounting is moreburdensome because it requires lessees to discount lease payments.

4

Table2-2 The reasons for being supportive of the undiscounted lease payments approach (the number ofvalid respondents; 951)

The undiscounted lease payments approach ismore appropriate to realize a lessee’s straight‐line
expense recognition.

83.7%

The proposed lessee accounting in the re‐ED would
not faithfully reflect the pattern in which the lessee
expects to consume the right‐of‐use asset’s future
economic benefits.

12.6%

3.7%

Others
0.0%

20.0%

40.0%

60.0%

80.0%

100.0%<The reasons for being supportive of the proposal in the re-ED>

The respondents who are supportive of the proposal in the re-ED account for only 10.3% (133 companies).
60.6% of the supportive view that the proposed lessee accounting is more appropriate than the undiscounted lease
payments approach to realize a lessee’s straight-line expense recognition. Some (34.8%)of the supportive view thatthe proposed lessee accounting is more preferable because a lessee overstates ROU asset and lease liability under theundiscounted lease payments approach even though that approach might be more appropriate to realize a lessee’s
straight-line lease expense recognition.
Table2-3 The reasons for being supportive of the proposal in the re-ED (the number of the valid respondents; 132)
The proposed accounting is more appropriate
than the undiscounted lease payments approachto realize a straight‐line expense recognition.

60.6%

The proposed accounting is more preferable
because a lessee overstates ROU asset and liability
under the undiscounted lease payments approacheven though that approach is more appropriate torealize a straight‐line lease expense recognition.

34.8%

4.5%

Others

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%<The reasons for being supportive of other approaches>

The respondents who are supportive of other approaches account for only 10.5% (128 companies). 42.3% of the
respondents who are supportive of others prefer to be able to choose either the approach proposed in the re-ED or theundiscounted lease payments approach. Some (39.8%) of those respondents prefer that a lessee apportions interest
component of lease payments over the lease term on a straight line basis (refer to Table2-4.).
The respondents who answered “others” (17.9%) view that the current standard is more preferable.

5Table2-4 The reasons for being supportive of others (the number of the valid respondents; 123)
Prefer to be able to choose either the approach
proposed in the re‐ED or the undiscounted lease
payments approach.

42.3%

Prefer to apportion interest component of lease
payments over the lease term on a straight line
basis.

39.8%

17.9%

Others
0.0%

20.0%

40.0%

60.0%

3. Measurement of a lease term
<Do you agree to the proposed measurement of a lease term in the re-ED?>

The majority (89.3%)of the respondents disagree to the proposed measurement of a lease term*3 inthe re-ED, while the minority (10.7%) of the respondents agree to the proposal (refer to Table3-1.).
*3

The re-ED proposes that a lease term be determined as the non-cancellable period together with theperiods covered by an option to extend or terminate the lease if the lessee has a significant
economic incentive.

Table3-1The proposed measurement of a lease term (the number of the valid respondents; 1,229)

Disagree
89.3%

0%

10%

20%

30%

40%

50%

Agree
10.7%

60%

70%

80%

90%

100%

<The reasons for disagreeing to the proposal>

At first, 54.9% of the respondents who disagree to the proposal view that it is difficult to determine whether thelessee has a significant economic incentive or not. At second, 22.9% of those respondents view that comparability offinancial statements would be reduced because some uncertain options could be included in the lease term (Refer toTable3-2.).
Some (1.0%) of the respondents who answered “others” view that the proposed measurement of a lease term iscomplex and others view that a lease term might be arbitrarily determined.

6

Table3-2 The reasons for disagreeing to the proposal (the number of the valid respondents; 1,094)
It is difficult to determine whether the lessee has asignificant economic incentive or not.

54.9%

Comparability of financial statements would be
reduced because some uncertain options could be
included in the lease term.

22.9%

There is no any defect to the current standard.

21.2%

Others

1.0%
0.0%

20.0%

40.0%

60.0%

<The reasons for agreeing to the proposal>

The respondents who agree to the proposal in the re-ED account for only 10.7% (131 companies) of all the
respondents. 62.3% of those respondents view that the proposed measurement of a lease term would reflect the natureof the lease term although it is difficult to determine whether the lessee has a significant economic incentive. 32.3% of
those respondents view that the proposed measurement would reflect the nature of the lease term and it is easy todetermine whether the lessee has a significant economic incentive (Refer to Table3-3.).
Table3-3 The reasons for agreeing to the proposal (the number of the valid respondents 130)
The proposal for lease term reflects the nature oflease term although it is difficult to determine
whether the lessee has a significant economic
incentive.

62.3%

The proposal for lease term would reflect thenature of lease term and it is easy to determine
whether the lessee has a significant economic
incentive.

32.3%

5.4%

Others
0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

4. Accounting for a short term lease<Do you agree to the proposed accounting for a short term lease?>

The majority (78.5%) of the respondents disagree to the proposed accounting for a short term lease*4, while theminority (21.5%) of the respondents agree to the proposal (refer to Table4-1.).
*4 The re-ED proposes that an entity can choose to account for a short term lease under the off-balance sheet
treatment. A short term lease is defined as “a lease that, at the commencement date, has a maximum possible
term under the contract, including any options to extend, of 12 months or less.”

7

Table4-1 Accounting for a short term lease (the number of the valid respondents; 1,220)

Disagree
78.5%
0%

10%

20%

30%

40%

Agree
21.5%
50%

60%

70%

80%

90%

100%

<The reasons for disagree to the proposal>

The majority (60.5%) of the respondents who disagree to the proposal view that if options to extend the leases
are included, there are few leases to which the proposed accounting for a short term lease could be applied, which
would be burdensome. 37.3% of those respondents view that the proposed accounting for a short term lease could not
be applied to many leases, because there are many leases where the non-cancelable lease term is more than one year,
which would be burdensome. (Refer to Table4-2.).
Some (2.2%) of the respondents who answered “others” view that it is difficult to determine options to extend
the lease and others view that the definition of short term lease should be one year or less excluding options to extend
the lease.
Table4-2 The reasons for disagreeing to the proposal (the number of the valid respondents; 954)
If options to extend the leases are included,
there are few leases to which the proposed
accounting for a short term lease could beapplied, which would be burdensome.

60.5%

The proposed accounting for a short termlease could not be applied to many leases,
because there are many leases where thenon‐cancelable lease term is more than one
year, which would be burdensome.

37.3%

2.2%

Others

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%<The reasons for agreeing to the proposal>

The respondents who agree to the proposal account for only 21.5% (262 companies) of the all the respondents.
At first, the majority (72.7%) of those respondents view that the proposal for a short term lease is appropriate from thestandpoint of costs and benefits. At second, 15.8% of those respondents view that the proposal is appropriate in orderto prevent an entity from intentionally structuring short term leases. 9.2% of those respondents view that the proposal
would be agreeable if the definition of a short term lease is consistent with that of a lease term (i.e. options are included
if the lessee has a significant economic incentive.) (Refer to Table4-3.).

8

Table4-3 The reasons for agreeing to the proposal (the number of the valid respondents; 260)

The proposal for a short term lease is appropriate
from the standpoint of costs and benefits.

72.7%

The proposal is appropriate in order to prevent anentity from intentionally structuring short termleases.

15.8%

The proposal would be agreeable if the definitionof a short term lease is consistent with that of alease term.

9.2%

2.3%

Others
0.0%

20.0%

40.0%

60.0%

80.0%

5. Accounting for a lease of a non-core asset<Do you agree to the proposal that there is no any distinction in accounting on the basis of whether theunderlying asset is core to an entity’s operations?>

The majority (87.2%) of the respondents disagree to the proposal that there is no any distinction in accounting on
the basis of whether the underlying asset is core to an entity’s operations, while the respondents who agree account for
only 12.8% of all the respondents (Refer to Table5-1.).
Table5-1 Accounting for a lease of a non-core asset (the number of the valid respondents; 1,061）

Disagree
87.2%
0%

10%

20%

30%

40%

Agree
12.8%

50%

60%

70%

80%

90%

100%

<The reasons for disagreeing to the proposal>

At first, 58.2% of the respondents who disagree to the proposal view that it is appropriate to apply the current
operating lease accounting to a lease of a non-core asset. At second, 40.9% of those respondents view that there would
be practical difficulties unless there is any practical relief in which an entity is able to determine whether the proposals
in the re-ED should be applied to its leases based on the materiality threshold set by the entity in the lease accounting
standard itself(Refer to Table 5-2.).
The respondents who answered “others” (0.8%) view that it is likely to be extremely costly and burdensome torecognize all the immaterial leases on a lessee’s balance sheet.

9

Table5-2 The reasons for disagreeing to the proposal (the number of the valid respondents; 1,061)
It is appropriate to apply the current
operating lease accounting to a lease of anon‐core asset.

58.2%

There would be practical difficulties without
any practical relief in which an entity candetermine whether the proposals should beapplied to its leases based on the materiality
threshold set by the entity in the standard.

40.9%

0.8%

Others

0.0%

20.0%

40.0%

60.0%

80.0%

<The reasons for agreeing to the proposal>

The respondents who agree to the proposal (i.e. there is no any distinction in accounting on the basis of whether
the underlying asset is core to an entity’s operations.) account for only 12.8% (156 companies) of all the respondents.
43.7% of those respondents view that there should be no exception for a lease of non-core asset. 35.1% of those
respondents view that there is no need to provide a specified accounting because the IFRS allows an entity todetermine whether the proposals in the re-ED should be applied to its leases by itself based on the materiality
threshold set by the entity. 17.2% of those respondents view that there is no need to provide any exception because
any numerical threshold would be complex to apply.
Table5-3 The reasons for agreeing to the proposal (the number of the valid respondents; 151)

There should be no exception for a lease ofnon‐core asset.

43.7%

There is no need to provide a specified
accounting because the IFRS allows an entity todetermine whether the proposals in the re‐EDshould be applied to its leases by itself basedon the materiality threshold set by the entity.

35.1%

There is no need to provide any exception
because any numerical threshold would becomplex to apply.

17.2%

4.0%

Others

0.0%

20.0%

10

40.0%

60.0%

80.0%

<Appendix 1> Attribution of respondents, Respondents who use leases and those who do not.
(1) Area (The number of the valid respondents; 1,233)

Area

Publiccompanies

Hokkaido
Tohoku area
(Aomori, Iwate, Miyagi, Akita, Yamagata, Fukushima)
Kanto‐Koshinetsu(Ibaraki, Tochigi, Gunma, Saitama, Chiba, Tokyo, Kanagawa, Niigata,
Yamanashi, Nagano, Shizuoka)
Tokyo only
Chubu area
(Toyama, Ishikawa, Gifu, Aichi, Mie)
Kinki area
(Fukui, Shiga, Kyoto, Osaka, Hyogo, Nara, Wakayama)
Chugoku area
(Tottori, Shimane, Okayama, Hiroshima, Yamaguchi)
Shikoku area
(Tokushima, Kagawa, Ehime, Kochi)
Kyushu area
(Fukuoka, Saga, Nagasaki, Kumamoto, Oita, Miyazaki, Kagoshima, Okinawa)
Total

297

Non‐publiccompanies
23(3.2%)
38(5.2%)
415(58.7%)(57.1%)(57.7%)

221(43.7%)
55(10.9%)
92(18.2%)
17(3.4%)
7(1.4%)
22(4.3%)
506(100.0%)290(39.9%)
62(8.5%)
102(14.0%)
24(3.3%)
18(2.5%)
45(6.2%)
727(100.0%)511(41.4%)
117(9.5%)
194(15.7%)
41(3.3%)
25(2.0%)
67(5.4%)
1,233(100.0%)Publiccompanies
136(26.7%)
177(34.7%)
65(12.7%)
87(17.1%)
18(3.5%)
27(5.3%)
510(100.0%)Non‐publiccompanies
301(41.0%)
330(45.0%)
45(6.1%)
42(5.7%)
9(1.2%)
7(1.0%)
734(100.0%)6( 1.2% )10(2.0%)

Total
29(2.4%)
48(3.9%)
712(2) Capital stock (the number of the valid respondents; 1,244)

Capital stock
Less than 1,000 million yen
1,000 million yen – less 5,000 million yen
5,000 million yen – less 10,000 million yen
10,000 million yen – less 50,000 million yen
50,000 million yen –less 100,000 million yen
100,000 million yen ‐
Total

11

Total
437
(35.1%)
507(40.8%)
110(8.8%)
129(10.4%)
27(2.2%)
34(2.7%)
1,244(100.0%)(3) Type of business (The number of the valid respondents; 1,241)

Type of business

Publiccompanies
34(6.7%)
212(41.5%)
34(6.7%)
20(3.9%)
101(19.8%)
19(3.7%)
18(3.5%)
73(14.3%)
511(100.0%)Construction
Manufacturing
Information and Communication
Transport
Wholesale and retail trade
Finance and Insurance
Real estate
OthersTotal

Non‐publiccompanies
39(5.3%)
211(28.9%)
55(7.5%)
34(4.7%)
112(15.3%)
74(10.1%)
56(7.7%)
149(20.4%)
730(100.0%)Total
73(5.9%)
423(34.1%)
89(7.2%)
54(4.4%)
213(17.2%)
93(7.5%)
74(6.0%)
222(17.9%)
1,241(100.0%)(4) Type of underlying assets (The number of the valid respondents; 1,218)

Type of underlying asset under leases

PublicNon‐public
Total
companies
companies
Respondents who have lease contracts
481
657
1,138
(96.0%)(91.6%)(93.4%)
Property
291
371
662
(58.1%)(51.7%)(54.4%)
596
Equipment(assets other than property
446
1,042
(89.0%)(83.1%)(85.6%)
Respondents who have no lease contracts (owned assets only)
20
60
80(4.0%)(8.4%)(6.6%)
Total
501
717
1,218
(100.0%)(100.0%)(100.0%)* The respondents multiply answer to “Property” and “Equipment (assets other than property)”. If a respondent
answers either “Property” or “Equipment”, the respondent is included in “Respondents who have lease
contracts”.
(5) Type of property leases (the number of the valid respondents; 653)

Type of property leases

Publiccompanies
38(13.2%)
275(95.5%)
288(100.0%)Finance lease
Operating lease
Total

12

Non‐publiccompanies
33(9.0%)
350(95.9%)
365(100.0%)Total
71(10.9%)
625(95.7%)
653(100.0%)(6) Type of equipment leases (leases of assets other than property)

Type of equipment
Finance lease
Operating lease
No leases
Information & communication equipment (the valid698(75.5%)371(40.1%)
26 (2.8%)
respondents; 925)
Manufacturing equipment & construction equipment346(45.8%)
158(20.9%)329(43.6%)(the valid respondents; 755)
Commercial & service equipment (the valid261(39.0%)
127(19.0%)332(49.6%)
respondents; 670)
Cars (the valid respondents; 846)
382(45.2%)448(53.0%)
118(13.9%)
Others (the valid respondents; 357)
64(17.9%)34(9.5%)273(76.5%)*1 The respondents multiply answer to “finance lease” and “operating lease”.
*2 “Others” includes software, office equipment, transport equipment other than cars, and medical equipment.
<Public companies>

Type of equipment
Information & communication equipment(the valid respondents; 400)
Manufacturing equipment & construction
equipment (the valid respondents; 357)
Commercial & service equipment(the valid respondents; 322)
Cars (the valid respondents; 382)
Others (the valid respondents; 157)

Finance lease304(76.0%)

Operating lease161(40.3%)

No leases12(3.0%)191(53.5%)76(21.3%)

134(37.5%)

141(43.8%)64(19.9%)147(45.7%)

177(46.3%)
33(21.0%)214(56.0%)11(7.0%)44(11.5%)
121(77.1%)

Finance lease394(75.0%)

Operating lease210(40.0%)

No leases
14(2.7%)

155(38.9%)82(20.6%)

195(49.0%)120(34.5%)63(18.1%)

185(53.2%)

205(44.2%)
31(15.5%)234(50.4%)
23(11.5%)

74(15.9%)
152(76.0%)<Non-public companies>

Type of equipment
Information & communication equipment(the valid respondents; 525)
Manufacturing equipment & construction
equipment (the valid respondents; 398)
Commercial & service equipment(the valid respondents; 348)
Cars (the valid respondents; 464)
Others (the valid respondents; 200)

(7) Share of property leases in operating leases (the valid respondents; 623)

Share

Publiccompanies
44(16.4%)
53(19.8%)
25(9.3%)
146(54.5%)
268(100.0%)Less than 10%
10%‐ 50%More than 50‐70%More than 70%
Total

13

Non‐publiccompanies
71(20.0%)
65(18.3%)
28(7.9%)
191(53.8%)
355(100.0%)Total
115(18.5%)
118(18.9%)
53(8.5%)
337(54.1%)
623(100.0%)<Appendix 2> Details of the results from the survey
1. The proposed lessee accounting in the re-ED(1) The proposed lessee accounting in the re-ED (the valid respondents; 1,232)

Respondents
1,119

Share
90.8%

Agree to the proposal.

113

9.2%

Total

1,232

100.0%Disagree to the proposal.

a. Public/Non-public ones (the valid respondents; 1,232)

Public companies
453(89.7%)52(10.3%)505(100.0%)

Disagree to the proposal.
Agree to the proposal.
Total

Non‐public companies
666(91.6%)61(9.2%)727(100.0%)

b. Respondents who use leases/respondents who do not. (the valid respondents; 1,200)

Companies using leases
1,024(91.1%)100(8.9%)
1,124(100.0%)

Disagree to the proposal.
Agree to the proposal.
Total

Companies using no leases
64(84.2%)
12(15.8%)
76(100.0%)

c. Type of underlying assets used by respondents who use leases (the valid respondents; 1,124)

both property & others942(91.5%)
88(8.5%)1,030(100.0%)

Disagree to the proposal.
Agree to the proposal.
Total

only property
82(87.2%)
12(12.8%)
94(100.0%)(2)The reasons for disagreeing to the proposal (the valid respondents; 1,100)

Respondents

Share

It is reasonable to improve the disclosures considering costs & practicability into
account if the information provided under the current standard is not sufficient.

483

43.9%

The current lease standard is appropriate.

400

36.4%

156

14.2%

33

3.0%

Others

28

2.5%

Total

1,100

100.0%The off‐balance sheet treatment is appropriate for a lease of property as required in
the current standard.
If operating leases are recognized on a lessee's B/S, a straight‐line lease expense
recognition is appropriate regardless of the nature of the underlying asset.

a. Public/Non-public companies (the valid respondents; 1,100)

Public companies

Non‐public companies

It is reasonable to improve the disclosures considering costs & practicability into
account if the information provided under the current standard is not sufficient.

188(42.4%)295(44.9%)

The current lease standard is appropriate.

153(34.5%)247(37.6%)

The off‐balance sheet treatment is appropriate for a lease of property as requiredin the current standard.

69(15.6%)

87(13.2%)

If operating leases are recognized on a lessee's B/S, a straight‐line lease expense
recognition is appropriate regardless of the nature of the underlying asset.

14(3.2%)19(2.9%)Others19(4.3%)9(1.4%)

Total

443(100.0%)657(100.0%)

14

b. Companies using leases/companies using no leases(the valid respondents; 1,070)

Using leases

Using no leases

It is reasonable to improve the disclosures considering costs & practicability into
account if the information provided under the current standard is not sufficient.

449(44.6%)27(42.9%)

The current lease standard is appropriate.

359(35.7%)28(44.4%)

The off‐balance sheet treatment is appropriate for a lease of property as requiredin the current standard.

142(14.1%)5(7.9%)

If operating leases are recognized on a lessee's B/S, a straight‐line lease expense
recognition is appropriate regardless of the nature of the underlying asset.

31(3.1%)2(3.2%)

Others26(2.6%)1(1.6%)

1,007(100.0%)63(100.0%)

Total

c. Type of underlying assets used by respondents who use leases (the valid respondents; 1,007)

Both property & others

Only property

It is reasonable to improve the disclosures considering costs & practicability into
account if the information provided under the current standard is not sufficient.

421(45.5%)28(34.6%)

The current lease standard is appropriate.

331(35.7%)

28(34.6%)

The off‐balance sheet treatment is appropriate for a lease of property as requiredin the current standard.

120(13.0%)22(27.2%)

If operating leases are recognized on a lessee's B/S, a straight‐line lease expense
recognition is appropriate regardless of the nature of the underlying asset.

30(3.2%)1(1.2%)

Others24(2.6%)2(2.5%)

Total

926(100.0%)81(100.0%)(3) The reasons for agreeing to the proposal (the valid respondents; 113)

Respondents
Recognizing all the leases on a lessee’s BS is appropriate. However, it is agreeable to the
proposed classification of leases unless another expense recognition is more appropriate.
Recognizing all the leases on a lessee’s BS is appropriate and the proposed lease
expense recognition patterns are also appropriate.

Share

57

50.4%

47

41.6%

Others

9

8.0%

Total

113

100.0％

a. Public/Non-public companies (the valid respondents; 113)

Public companies

Non‐public companies

25 (48.1%)

22(36.1%)

23(44.2%)

34(55.7%)

Others4(7.7%)

5(8.2%)

Total

52(100.0%)61(100.0%)

Recognizing all the leases on a lessee’s BS is appropriate. However, it is agreeable to the
proposed classification of leases unless another expense recognition is more appropriate.
Recognizing all the leases on a lessee’s BS is appropriate and the
proposed lease expense recognition patterns are also appropriate.

15b. Companies using leases/companies using no leases (the valid respondents; 112)

Using leases
Recognizing all the leases on a lessee’s BS is appropriate. However, it is agreeable to the
proposed classification of leases unless another expense recognition is more appropriate.
Recognizing all the leases on a lessee’s BS is appropriate and the
proposed lease expense recognition patterns are also appropriate.
Others
Total

Using no leases

51(51.0%)6(50.0%)43(43.0%)4(33.3%)6(6.0%)

2(16.7%)100(100.0%)12(100.0%)

c. Type of underlying assets used by respondents who use leases (the valid respondents; 100)

Both property & others

Only property

44(50.0%)7(58.3%)39(44.3%)

4(33.3%)

Others5(5.7%)

1(8.3%)

Total

88(100.0%)12(100.0%)

Recognizing all the leases on a lessee’s BS is appropriate. However, it is agreeable to the
proposed classification of leases unless another expense recognition is more appropriate.
Recognizing all the leases on a lessee’s BS is appropriate and the
proposed lease expense recognition patterns are also appropriate.

2. Straight-line lease expense recognition(1) Straight-line lease expense recognition (the valid respondents; 1,217)

Respondents
956

Share
78.6%

Supportive of the proposal in the re‐ED.

133

10.9%

Supportive of other approaches.

128

10.5%

Total

1,217

100.0%

Supportive of the “undiscounted lease payments approach”.

a. Public/Non-public companies (the valid respondents; 1,217)

Supportive of the “undiscounted lease payments approach”.
Supportive of the proposal in the re‐ED.
Supportive of other approaches.
Total

Public companies
385(77.2%)63(12.6%)
51(10.2%)
499(100.0%)

Non‐public companies
571(79.5%)70(9.7%)77(10.7%)718(100.0%)

b. Companies using leases/companies using no leases (the valid respondents; 1,187)

Supportive of the “undiscounted lease payments approach”.
Supportive of the proposal in the re‐ED.
Supportive of other approaches.
Total

Using leases
877(78.8%)120(10.8%)116(10.4%)
1,113(100.0%)

Using no leases
58(78.4%)9(12.2%)7(9.5%)
74(100.0%)

c. Type of underlying assets used by respondents who use leases (the valid respondents; 1,113)

Supportive of the “undiscounted lease payments approach”.
Supportive of the proposal in the re‐ED.
Supportive of other approaches.
Total

16

Both property & others809(79.3%)
105(10.3%)
106(10.4%)
1,020(100.0%)

Only property
68(73.1%)
15(16.1%)
10(10.8%)
93(100.0%)

(2) The reasons for being supportive of the undiscounted lease payments approach (the valid respondents;
951)

Respondents
The undiscounted lease payments approach is more appropriate to realize a lessee’s
straight‐line expense recognition.
The proposed lessee accounting in the re‐ED would not faithfully reflect the pattern inwhich the lessee expects to consume the right‐of‐use asset’s future economic benefits.

Share

796

83.7%

120

12.6%

Others

35

3.7%

Total

951

100.0％

a. Public/Non-public companies (the valid respondents; 951)

Public companies

Non‐public companies

308(80.2%)488(86.1%)

58(15.1%)

62(10.9%)

Others18(4.7%)17(3.0%)Total

384(100.0%)567(100.0%)

The undiscounted lease payments approach is more appropriate torealize a lessee’s straight‐line expense recognition.
The proposed lessee accounting in the re‐ED would not faithfully reflect the pattern inwhich the lessee expects to consume the right‐of‐use asset’s future economic benefits.

b. Companies using leases/companies using no leases (the valid respondents; 930)

Using leases
The undiscounted lease payments approach is more appropriate torealize a lessee’s straight‐line expense recognition.
The proposed lessee accounting in the re‐ED would not faithfully reflect the pattern inwhich the lessee expects to consume the right‐of‐use asset’s future economic benefits.

Using no leases

735(84.1%)

46(82.1%)

107(12.2%)9(16.1%)Others32(3.7%)1(1.8%)

Total

874(100.0%)56(100.0%)

c. Type of underlying assets used by respondents who use leases (the valid respondents; 874)

Both property & others
The undiscounted lease payments approach is more appropriate torealize a lessee’s straight‐line expense recognition.
The proposed lessee accounting in the re‐ED would not faithfully reflect the pattern inwhich the lessee expects to consume the right‐of‐use asset’s future economic benefits.

Only property

676(83.9%)59(86.8%)

98(12.2%)9(13.2%)Others32(4.0%)0(0.0%)

Total

806(100.0%)68(100.0%)(3) The reasons for being supportive of the proposal in the re-ED (the number of the valid respondents; 132)

Respondents
The proposed accounting is more appropriate than the undiscounted lease
payments approach to realize a straight‐line expense recognition.
The proposed accounting is more preferable because a lessee overstates ROU andliability under the undiscounted lease payments approach even though thatapproach is more appropriate to realize a straight‐line lease expense recognition.

Share

80

60.6%

46

34.8%

Others

6

4.5%

Total

132

100.0%

17

a. Public/Non-public companies (the valid respondents; 132)

Public companies

Non‐public companies

34(54.8%)46(65.7%)

24(38.7%)22(31.4%)

Others4(6.5%)

17 2.9%)Total

62(100.0%)70(100.0%)

The proposed accounting is more appropriate than the undiscounted lease payments
approach to realize a straight‐line expense recognition.
The proposed accounting is more preferable because a lessee overstates ROU and liability
under the undiscounted lease payments approach even though that approach is more
appropriate to realize a straight‐line lease expense recognition.

b. Companies using leases/companies using no leases (the valid respondents; 128)

Using leases
The proposed accounting is more appropriate than the undiscounted lease payments
approach to realize a straight‐line expense recognition.
The proposed accounting is more preferable because a lessee overstates ROU and liability
under the undiscounted lease payments approach even though that approach is more
appropriate to realize a straight‐line lease expense recognition.

Using no leases

71(59.7%)

6(66.7%)43(36.1%)

2(22.2%)Others5(4.2%)

1(11.1%)

Total

119(100.0%)9(100.0%)

c. Type of underlying assets used by respondents who use leases (the valid respondents; 119)

Both property & others
The proposed accounting is more appropriate than the undiscounted lease payments
approach to realize a straight‐line expense recognition.
The proposed accounting is more preferable because a lessee overstates ROU and liability
under the undiscounted lease payments approach even though that approach is more
appropriate to realize a straight‐line lease expense recognition.

Only property

62(59.6%)9(60.0%)37(35.6%)

6(40.0%)

Others5(4.8%)

0(0.0%)

Total

104(100.0%)15(100.0%)(4) The reasons for being supportive of others (the number of the valid respondents; 123)

Respondents
Prefer to be able to choose either the approach proposed in the re‐ED or theundiscounted lease payments approach.
Prefer to apportion interest component of lease payments over the lease term on astraight line basis.

Share

52

42.3%

49

39.8%

Others

22

17.9%

total

123

100.0%

a. Public/Non-public companies (the valid respondents; 123)

Public companies

Non‐public companies

17(35.4%)35(46.7%)21(43.8%)

28(37.3%)

Others10(20.8%)

12(16.0%)

total

48(100.0%)75(100.0%)

Prefer to be able to choose either the approach proposed in the
re‐ED or the undiscounted lease payments approach.
Prefer to apportion interest component of lease payments over thelease term on a straight line basis.

18

b. Companies using leases/companies using no leases (the valid respondents; 118)

Using leases
Prefer to be able to choose either the approach proposed in the
re‐ED or the undiscounted lease payments approach.
Prefer to apportion interest component of lease payments over thelease term on a straight line basis.

Using no leases

49(44.1%)

1(14.3%)44(39.6%)3(42.9%)Others18(16.2%)

3(42.9%)total

111(100.0%)7(100.0%)

c. Type of underlying assets used by respondents who use leases (the valid respondents; 111)

Both property & others
Prefer to be able to choose either the approach proposed in the
re‐ED or the undiscounted lease payments approach.
Prefer to apportion interest component of lease payments over thelease term on a straight line basis.

Only property

44(43.6%)

5(50.0%)42(41.6%)2(20.0%)

Others15(14.3%)

3(30.0%)total

101(100.0%)10(100.0%)

3. Measurement of a lease term
(1) Measurement of a lease term (the valid respondents; 1,229)

Respondents
1,098
131
1,229

Disagree to the proposal in the re‐ED.
Agree to the proposal in the re‐ED.
Total

Share
89.3%
10.7%
100.0%

a. Public/Non-public companies (the valid respondents; 1,229)

Public companies
444(88.1%)60(11.9%)504(100.0%)

Disagree to the proposal in the re‐ED.
Agree to the proposal in the re‐ED.
Total

Non‐public companies
654(90.2%)71(9.8%)725(100.0%)

b. Companies using leases/companies using no leases (the valid respondents; 1,200)

Using leases
1,009(89.8%)
115(10.2%)
1,124(100.0%)

Disagree to the proposal in the re‐ED.
Agree to the proposal in the re‐ED.
Total

Using no leases
62(81.6%)
14(18.4%)
76(100.0%)

c. Type of underlying assets used by respondents who use leases (the valid respondents; 1,124)

Both property & others936(90.9%)94(9.1%)
1,030(100.0%)

Disagree to the proposal in the re‐ED.
Agree to the proposal in the re‐ED.
Total

19

Only property
73(77.7%)21(22.3%)
94(100.0%)

(2) The reasons for disagreeing to the proposal (the number of the valid respondents; 1,094)

Respondents
It is difficult to determine whether the lessee has a significant economic incentive ornot.
Comparability of financial statements would be reduced because some uncertain
options could be included in the lease term.

Share

601

54.9%

250

22.9%

There is no any defect to the current standard.

232

21.2%

Others

11

1.0%

Total

1,094

100.0%

a. Public/Non-public companies (the valid respondents; 1,094)

It is difficult to determine whether the lessee has a significant
economic incentive or not.
Comparability of financial statements would be reduced becausesome uncertain options could be included in the lease term.
There is no any defect to the current standard.
Others
Total

Public companies

Non‐public companies

242(54.9%)359(55.0%)111(25.2%)

139(21.3%)

83(18.8%)

149(22.8%)5(1.1%)

6(0.9%)

441(100.0%)653(100.0%)

b. Companies using leases/companies using no leases (the valid respondents; 1,067)

Using leases
It is difficult to determine whether the lessee has a significant
economic incentive or not.
Comparability of financial statements would be reduced becausesome uncertain options could be included in the lease term.
There is no any defect to the current standard.
Others
Total

Using no leases

557(55.4%)29(46.8%)231(23.0%)15(24.2%)

209(20.8%)

16(25.8%)8(0.8%)

2(3.2%)

1,005(100.0%)62(100.0%)

c. Type of underlying assets used by respondents who use leases (the valid respondents; 1,005)

Both property & others
It is difficult to determine whether the lessee has a significant
economic incentive or not.
Comparability of financial statements would be reduced becausesome uncertain options could be included in the lease term.
There is no any defect to the current standard.
OthersTotal

20

Only property

521(55.8%)36(50.0%)215(23.0%)16(22.2%)

189(20.3%)

20(27.8%)8(0.9%)

0(0.0%)

933(100.0%)72(100.0%)

(3) The reasons for agreeing to the proposal (the number of the valid respondents 130)

Respondents
The proposal for lease term reflects the nature of lease term although it is difficult todetermine whether the lessee has a significant economic incentive.
The proposal for lease term would reflect the nature of lease term and it is easy todetermine whether the lessee has a significant economic incentive.

Share

81

62.3%

42

32.3%

Others

7

5.4%

Total

130

100.0%

a. Public/Non-public companies (the valid respondents; 130)

Public companies

Non‐public companies

39(65.0%)42(60.0%)17(28.3%)25(35.7%)

Others4(6.7%)

3(4.3%)

Total

60(100.0%)70(100.0%)

The proposal for lease term reflects the nature of lease term
although it is difficult to determine whether the lessee has asignificant economic incentive.
The proposal for lease term would reflect the nature of lease term
and it is easy to determine whether the lessee has a significant
economic incentive.

b. Companies using leases/companies using no leases (the valid respondents; 128)

Using leases
The proposal for lease term reflects the nature of lease term
although it is difficult to determine whether the lessee has asignificant economic incentive.
The proposal for lease term would reflect the nature of lease term
and it is easy to determine whether the lessee has a significant
economic incentive.
Others
Total

Using no leases

75(65.2%)

5(38.5%)35(30.4%)

6(46.2%)5(4.3%)

2(15.4%)115(100.0%)13(100.0%)

c. Type of underlying assets used by respondents who use leases (the valid respondents; 115)

Both property & others
The proposal for lease term reflects the nature of lease term
although it is difficult to determine whether the lessee has asignificant economic incentive.
The proposal for lease term would reflect the nature of lease term
and it is easy to determine whether the lessee has a significant
economic incentive.

Only property

57(60.6%)

18(85.7%)

32(34.0%)3(14.3%)

Others5(5.3%)

0(0.0%)

Total

94(100.0%)21(100.0%)

21

4. Accounting for a short term lease(1) Accounting for a short term lease (the valid respondents; 1,220)

Respondents

Share

Disagree to the proposal in the re‐ED.

958

78.5%

Agree to the proposal in the re‐ED.

262

21.5%

Total

1,220

100.0%

a. Public/Non-public companies (the valid respondents; 1,220)

Public companies
372(74.3%)
129(25.7%)
501(100.0%)

Disagree to the proposal in the re‐ED.
Agree to the proposal in the re‐ED.
Total

Non‐public companies
586(81.5%)133(18.5%)719(100.0%)

b. Companies using leases/companies using no leases (the valid respondents; 1,192)

Using leases
880(78.9%)236(21.1%)
1,116(100.0%)

Disagree to the proposal in the re‐ED.
Agree to the proposal in the re‐ED.
Total

Using no leases
57(75.0%)19(25.0%)76(100.0%)

c. Type of underlying assets used by respondents who use leases (the valid respondents; 1,116)

Both property & others811(79.4%)
211(20.6%)
1,022(100.0%)

Disagree to the proposal in the re‐ED.
Agree to the proposal in the re‐ED.
Total

Only property
69(73.4%)25(26.6%)
94(100.0%)(2) The reasons for disagree to the proposal (the number of the valid respondents; 954)

Respondents
If options to extend the leases are included, there are few leases to which the proposed
accounting for a short term lease could be applied, which would be burdensome.
The proposed accounting for a short term lease could not be applied to many leases, because there aremany leases where the non‐cancelable lease term is more than one year, which would be burdensome.

Share

577

60.5%

356

37.3%

Others

21

2.2%

total

954

100.0%

a. Public/Non-public companies (the valid respondents; 954)

Public companies

Non‐public companies

235(63.5%)342(58.6%)

125(33.8%)231(39.6%)

Others10(2.7%)11(1.9%)total

370(100.0%)584(100.0%)

If options to extend the leases are included, there are few leases to which the proposed
accounting for a short term lease could be applied, which would be burdensome.
The proposed accounting for a short term lease could not be applied to many leases, because there aremany leases where the non‐cancelable lease term is more than one year, which would be burdensome.

b. Companies using leases/companies using no leases (the valid respondents; 933)

Using leases
If options to extend the leases are included, there are few leases to which the proposed
accounting for a short term lease could be applied, which would be burdensome.
The proposed accounting for a short term lease could not be applied to many leases, because there aremany leases where the non‐cancelable lease term is more than one year, which would be burdensome.

Using no leases534(61.0%)29(50.9%)326(37.2%)

26(45.6%)

Others16(1.8%)2(3.5%)

total

876(100.0%)57(100.0%)22

c. Type of underlying assets used by respondents who use leases (the valid respondents; 865)

Both property & others
If options to extend the leases are included, there are few leases to which the proposed
accounting for a short term lease could be applied, which would be burdensome.
The proposed accounting for a short term lease could not be applied to many leases, because there aremany leases where the non‐cancelable lease term is more than one year, which would be burdensome.

492(61.7%)42(61.8%)

302(37.9%)24(35.3%)

3(0.4%)

2(2.9%)

797(100.0%)68(100.0%)

Otherstotal

Only property(3) The reasons for agreeing to the proposal (the number of the valid respondents; 260)

Respondents
The proposal for a short term lease is appropriate from the standpoint of costs andbenefits.
The proposal is appropriate in order to prevent an entity from intentionallystructuring short term leases.
The proposal would be agreeable if the definition of a short term lease is consistent with thatof a lease term (i.e. options are included if the lessee has a significant economic incentive.).
Others

Share

189

72.7%

41

15.8%

24

9.2%

6

2.3%

260

100.0%

a. Public/Non-public companies (the valid respondents; 260)

The proposal for a short term lease is appropriate from thestandpoint of costs and benefits.
The proposal is appropriate in order to prevent an entity from
intentionally structuring short term leases.
The proposal would be agreeable if the definition of a short term lease is consistent with thatof a lease term (i.e. options are included if the lessee has a significant economic incentive.).
Others
Total

Public companies

Non‐public companies

88(68.2%)

101(77.1%)

26(20.2%)

15(11.5%)12(9.3%)12(9.2%)3(2.3%)

3(2.3%)

129(100.0%)131(100.0%)

b. Companies using leases/companies using no leases (the valid respondents; 253)

Using leases
The proposal for a short term lease is appropriate from thestandpoint of costs and benefits.
The proposal is appropriate in order to prevent an entity from
intentionally structuring short term leases.
The proposal would be agreeable if the definition of a short term lease is consistent with thatof a lease term (i.e. options are included if the lessee has a significant economic incentive.).
OthersTotal

23

Using no leases

172(73.2%)

15(83.3%)

37(15.7%)1(5.6%)

22(9.4%)0(0.0%)

4(1.7%)

2(11.1%)235(100.0%)18(100.0%)

c. Type of underlying assets used by respondents who use leases (the valid respondents; 235)

Both property & others
The proposal for a short term lease is appropriate from thestandpoint of costs and benefits.
The proposal is appropriate in order to prevent an entity from
intentionally structuring short term leases.
The proposal would be agreeable if the definition of a short term lease is consistent with thatof a lease term (i.e. options are included if the lessee has a significant economic incentive.).

152(72.4%)20(80.0%)33(15.7%)4(16.0%)21(10.0%)1(4.0%)

4(1.9%)

0(0.0%)

210(100.0%)25(100.0%)

Others
Total

Only property

5. Accounting for a lease of a non-core asset(1) Accounting for a lease of a non-core asset (the valid respondents; 1,223)

Respondents

Share

Disagree to the proposal in the re‐ED.

1,067

87.2%

Agree to the proposal in the re‐ED.

156

12.8%

Total

1,223

100.0%

a. Public/Non-public companies (the valid respondents; 1,223)

Public companies
430(84.8%)77(15.2%)
507(100.0%)

Disagree to the proposal in the re‐ED.
Agree to the proposal in the re‐ED.
Total

Non‐public companies
637(89.0%)79(11.0%)716(100.0%)

b. Companies using leases/companies using no leases (the valid respondents; 1,194)

Using leases979(87.6%)
139(12.4%)
1,118(100.0%)

Disagree to the proposal in the re‐ED.
Agree to the proposal in the re‐ED.
Total

Using no leases
64(84.2%)
12(15.8%)
76(100.0%)

c. Type of underlying assets used by respondents who use leases (the valid respondents; 1,118)

Both property & others
900(87.9%)124(12.1%)
1,024(100.0%)

Disagree to the proposal in the re‐ED.
Agree to the proposal in the re‐ED.
Total

Only property
79(84.0%)15(16.0%)94(100.0%)(2) The reasons for disagreeing to the proposal (the number of the valid respondents; 1,061)

Respondents
It is appropriate to apply the current operating lease accounting to a lease of anon‐core asset.
There would be practical difficulties without any practical relief in which an entity isable to determine whether the proposals should be applied to its leases based on
the materiality threshold set by the entity.
Others
Total

24

Share

618

58.2%

434

40.9%

9

0.8%

1,061

100.0%

a. Public/Non-public companies (the valid respondents; 1,061)

It is appropriate to apply the current operating lease accounting to alease of a non‐core asset.
There would be practical difficulties without any practical relief in which anentity is able to determine whether the proposals should be applied to its
leases based on the materiality threshold set by the entity.

Public companies

Non‐public companies

223(52.2%)395(62.3%)200(46.8%)234(36.9%)4(0.9%)

5(0.8%)

427(100.0%)634(100.0%)

OthersTotal

b. Companies using leases/companies using no leases (the valid respondents; 1,037)

Using leases
It is appropriate to apply the current operating lease accounting to alease of a non‐core asset.
There would be practical difficulties without any practical relief in which anentity is able to determine whether the proposals should be applied to its
leases based on the materiality threshold set by the entity.

563(57.9%)

37(57.8%)404(41.5%)25(39.1%)6(0.6%)

2(3.1%)

973(100.0%)64(100.0%)

Others
Total

Using no leases

c. Type of underlying assets used by respondents who use leases (the valid respondents; 969)

Both property & others
It is appropriate to apply the current operating lease accounting to alease of a non‐core asset.
There would be practical difficulties without any practical relief in which anentity is able to determine whether the proposals should be applied to its
leases based on the materiality threshold set by the entity.

522(58.6%)41(52.6%)

367(41.2%)

37(47.4%)2(0.2%)

0(0.0%)

891(100.0%)78(100.0%)

Others
Total

Only property(3) The reasons for agreeing to the proposal (the number of the valid respondents; 151)

Respondents
There should be no exception for a lease of non‐core asset.

Share

66

43.7%

53

35.1%

26

17.2%

Others

6

4.0%

Total

151

100.0%

There is no need to provide a specified accounting because the IFRS allows an entity to determine whether
the proposals in the re‐ED should be applied to its leases by itself based on the materiality threshold set by
the entity.
There is no need to provide any exception because any numerical threshold would
be complex to apply.

25

a. Public/Non-public companies (the valid respondents; 151)

There should be no exception for a lease of non‐core asset.
There is no need to provide a specified accounting because the IFRS allows anentity to determine whether the proposals in the re‐ED should be applied toits leases by itself based on the materiality threshold set by the entity.
There is no need to provide any exception because any numericalthreshold would be complex to apply.
Others
Total

Public companies

Non‐public companies

34(45.3%)

32(42.1%)

32(42.7%)21(27.6%)5(6.7%)

21(27.6%)4(5.3%)

2(2.6%)

75(100.0%)76(100.0%)

b. Companies using leases/companies using no leases (the valid respondents; 146)

Using leases
There should be no exception for a lease of non‐core asset.

Using no leases

59(43.4%)

5(50.0%)51(37.5%)2(20.0%21(15.4%)

3(30.0%)

Others5(3.7%)

0(0.0%)

Total

136

10

There is no need to provide a specified accounting because the IFRS allows anentity to determine whether the proposals in the re‐ED should be applied toits leases by itself based on the materiality threshold set by the entity.
There is no need to provide any exception because any numericalthreshold would be complex to apply.

c. Type of underlying assets used by respondents who use leases (the valid respondents; 136)

Both property & others
There should be no exception for a lease of non‐core asset.
There is no need to provide a specified accounting because the IFRS allows anentity to determine whether the proposals in the re‐ED should be applied toits leases by itself based on the materiality threshold set by the entity.
There is no need to provide any exception because any numericalthreshold would be complex to apply.
OthersTotal

26

Only property

53(43.8%)6(40.0%)44(36.4%)7(46.7%)19(15.7%)2(13.3%)5(4.1%)

0(0.0%)

121(100.0%)25(100.0%)

September, 2013

Japan Leasing Association (JLA)

Survey Results regarding Lease Accounting

2

 JLA ordered Deloitte Tohmatsu Consulting(DTC) to conduct this survey. This report was made by JLA based on the
result of the survey.

 Responding to this situation, JLA decided to conduct this survey to invite comments of analysts as main financial
statement users.

 In Japan, under existing Leases accounting standards, off-balance-sheet transaction on operating leases is composed
predominantly of the property leases, however they account for only small portion of total assets in many companies.
Therefore, there are opinions that the balance of companies’ implementation/maintenance cost and users’ benefits
should be weighed against revised ED requiring the change of accounting treatment for all lease contracts including
financing lease.

 In US and Europe, on the other hand, there is a variety of needs of financial statement users and perspectives onleases. Therefore, there is another argument that disclosed items should be expanded so that lease transactions canbe easily adjusted to meet the financial statement users’ needs, rather than forcing uniform on balance accounting.

 The second ED explains meaning of the project as that ,based on IASB’s hearing from financial statement users, mostof lease transactions have been occupied by operating leases, and almost all users adjust the amount presented in thestatement of financial position to reflect the assets and liabilities arising from operating leases.

 They issued the exposure draft Leases (“ED”) on August in 2010. However the ED was met with the strong criticism
and, after re-deliberation they decided to issue the second exposure draft on Leases on May in 2013 and invitedcomments until September.

 IASB (International Accounting Standards Board) and FASB (Financial Accounting Standards Board) are promoting
improvement of lease accounting as joint project.

BackgroundIn corporate financial analysis, for operating lease that are offbalance-sheet transactions, do you adjust the financial
statements based on notes to the financial statements?

If answer to Q1 is Yes, please specify frequency of adjustment.

If answer to Q1 is Yes, please specify method of adjustment.

If answer to Q1 is Yes, and proposals in the revised
exposure draft Leases (“ED”) of IASB・ FASB would beapplied, does current adjustment become unnecessary?

If answer to Q1 is No, please specify why adjustment is not
carried out.

If the proposal in ED would be applied, do you think expectedaccounting outcome for property lease contract underJapanese common practice would be appropriate?

Under existing Leases accounting standards, there are offbalance-sheet concerns on operating lease. What do you thinkshould be done to address the matter?

Upon setting of accounting standards, there are opinions thatthe balance of companies’ implementation/maintenance costand users’ benefits should be weighed. As users of financial
statements, what is your opinion on the matter?

1

2

3

4

5

6

7

8

3

Questionnaire

Number

Questionnaire

Questionnaire and its relationshipQ2, 3, 4

Q6, 7, 8

Q1

RelationshipQ5

4

90% of respondents replied who carry out adjustment do not always do so, but only when there is ansignificance. Also, regarding adjustment method, around 90% users adjust balance sheet to make
operating lease on balance using information in notes to the financial statements, not making complex
adjustment.

When the proposals of the ED would be applied, response that current adjustment becomes unnecessary
and unsure is around 40/60.

Only 6% of financial statement users responded that proposed accounting for leases on the proposals in
the ED is appropriate, and over half of users responded that it is inappropriate and excessive.

Only around 10% of financial statement users responded that all lease should be on-balance-sheet as the
proposals of the ED. There is no need to account for all lease on on-balance-sheet, but responses that
believe notes information must be enhanced in order to facilitate company’s financial analysis makes up
70%. Also, around 20% of respondents replied that there is no problem currently.

Around 70% of respondents believe that when enforcing accounting standards, it is necessary to weigh thecompany’s implementation and management cost and users’ benefit.











As a result, JLA views that benefits to users of financial statements arising from the proposals by theboards are limited. JLA’s also views that the boards should focus on only improving disclosures withthe current standard retained given costs incurred by preparers. This view is justified by the views fromusers of financial statements.

Regarding operating lease transactions, respondents who carry out adjustment based on notes to thefinancial statements is around 30%. From this finding, we concluded that around 70% users do not carryout adjustment.



Summary Results

8%

5

6%

Transportation

Telecommunications

Wholesale

Retail 9%8%

N = 1,752

Electricity and gas

4%
1%

Manufacturing

48%
14%

20%

2%
4%
Wholesale
Telecommunications

RetailFinance4%

N = 50Electricity and gas
Transportation

10%

34%

Manufacturing

Fisheries and agriculture,
Service forestry and mining
Construction
Real estate
0%
2%
4% 6%

Fisheries and agriculture,
forestry and mining
Service
Construction
Real estate
6% 1% 6%
3%

FinanceIndustry Composition Ratio of respondents

Industry Composition Ratio of listed companies

Taking into account the composition ratio of listed companies’ industries, survey was conducted so thatthe balance of the survey respondents’ industries is well spread.

Survey Respondents’ representative industries

6

Industry Classification

Fisheries and agriculture, forestry and mining
Manufacturing
Electricity and gas
Telecommunications
FinanceIndustry Classification

Construction

Transportation

Wholesale

RetailReal Estate

ServiceIndustries with low volume of operating lease

Industries with high volume of operating lease

Industry trend was analyzed by the category of industries with high and low volume of operating lease as
below.

Surveyed Industries List

7

B: No

A: YesQ1 In corporate financial analysis, for operating leasethat are off-balance-sheet transactions, do you
adjust the financial statements based on notes to thefinancial statements?

Question36

72%

N = 50

A: Yes

B: No

Response Results

28%

14

For operating lease transactions, response that adjustment is carried out based on notes to the financial
statements is around 30%.

Question 1.
Regarding Operating Lease adjustment status

8

12

63%

N = 1937%

7

A: YesIndustries with high volume of operating lease

B: No

24

77%

N = 31

23%

7

Industries with low volume of operating lease

When looking at the results after dividing the industries into high and low volume operating lease, highvolume operating lease industries has more respondents who replied yes to adjustment

Question 1.
Regarding Operating Lease adjustment status (Industry trend)9A-2: No particular numerical threshold when decides
whether adjust or not.

A-1: with numerical threshold. (If possible, please
specify the criteria. Ex: Total Asset %Q2-1 If answer to Q2 is A, please specify whether or
not there is a numeric threshold as to whether
adjust or not .

B: Always adjusted.

A: If there is significance to operating leasetransaction, adjustment is carried out, but if
considered no importance, there is no adjustment.

Q2 If answer to Q1 is Yes, please specify frequency of
adjustment.

Question

2

A

B

86%

N = 14

14%

12

8%

92%

A-2

1

N = 12

A-1

11

Response Results

Respondents who do not adjust when there is not significance to operating lease makes up around 90%.
Among those, respondents who has no particular numerical threshold as to whether adjust or not makeup around 90%.

Question 2.
Adjustment frequency

10

D: Adjustment is carried out in another way (Ifpossible, please specify the adjustment method).

C: In addition to B’s adjustment, divide each lease
payments into interest and repayment of principal,
and adjust the interest portion to charge to income
statement.

B: Divide the amount of the minimum lease paymentof non-cancellable operating leases in notes to thefinancial statements into principal and interest, andadjust the principal portion to capitalize as liability.

A: Capitalize the amount of the minimum lease
payment of non-cancellable operating leases innotes to the financial statements as liability .

Q3 Please specify the adjustment methods.

Question

1

A

7%

0%

0

B
N = 14

7%

1

C

86%

Response Results

D

12

Respondents who capitalize the amount of the minimum lease payment of non-cancellable operatingleases in notes to the financial statements as liability make up around 90% of responses.

Question 3.
Adjustment Methods

11

C: Unsure.

B: Does not become unnecessary(If possible, specify why it does not
become unnecessary).

Q4 If proposals in the revised exposure
draft Leases (“ED”) of IASB/FASB
would be applied, does current
adjustment become unnecessary?
A: Becomes unnecessary

Question

857%

B
N = 14

A

C

0

0%

Response Results

43%

Regarding application of the proposals in the ED of IASB/FASB, response that current adjustment
becomes unnecessary and unsure is around 40/60.

Question 4.
Regarding application of the proposals in the ED of IASB/FASB

6

12

C: Neither

B: Accurate data needed for adjustment is not
ensured

A: There is not enough significance to affect thefinancial analysis of company

Q5 Please specify why adjustment is not carried out.

Question

14
39%

B
N = 36A

3%

1

Response ResultsC58%

As a reason not to make adjustment, response that there is not enough significance to affect thefinancial analysis of company makes up around 60%.

Question 5.
Reason why adjustment is not carried out

21

13

C: Unsure.

B: Above accounting outcome for leases isinappropriate or excessive. Regarding these leasetransactions are cancellable any time, it isacceptable to allow off-balance-sheet treatment.

A: Above accounting outcome for leases isappropriate.

Q6 If the proposal in ED would be applied, do you think
expected accounting outcome for property lease
contract under Japanese common practice would beappropriate?

Question

19 38%A

N = 50

B

6%

3

C

Response Results

56%

28

Response stating that expected accounting outcome for property lease is inappropriate or excessive
makes up over half of responses.

Question 6.
Accounting outcome for leases proposed by the ED of IASB/FASB

14

8

42%

11
36%

N = 19

C: UnsureN = 31

B: Above accounting for leases is inappropriate and excessive

6%

2

58%

18

Industries with low volume of operating lease

A: Above accounting for leases is appropriate

53% 10Industries with high volume of operating lease1
5%

When looking at the results after dividing the industries into high and low volume operating lease, there
was not a big different between high and low volume industries.

Question 6. Accounting outcome for leases proposed by the ED of
IASB/FASB (Industry Trend)

15

D: Unsure.

C: No problem with current status.

B: There is no need to book all lease on-balancesheet but notes information must be expanded.

A: All lease should be on-balance-sheet.

Q7 Under existing Leases accounting standards, there
are off-balance-sheet concerns on operating lease.
What do you think should be done to address thematter?

Question

8

A

16%

6
12%

C

70%

N = 50B

2%

1

Response Results

D

35

There is no need to account for all lease on on-balance-sheet, but responses that believe notes
information must be enhanced in order to facilitate company’s financial analysis makes up 70%.

Question 7.
Regarding Off-balance-sheet Treatment

16

2
0%

N = 19

74%

10%

0

14

6
19%

3%

68%

10%

3

D: Unsure.

C: No problem with current status.

N = 31

B: There is no need to transition all leases to on-balance-sheet.

1

21

Industries with low volume of operating lease

A: All leases should be done on-balance-sheet.

16%

3

Industries with high volume of operating lease

When looking at the results after dividing the industries into high and low volume operating lease, highvolume industries’ respondents have a higher percentage who agree with notes information expansion.

Question 7.
Regarding Off-balance-sheet Treatment (Industry Trend)

17

C: Unsure.

B: As users of income statement, even with high cost,
would like more information.

A: Weighing of cost and benefit is necessary.

Q8 Upon setting of accounting standards, there are
opinions that the balance of companies’
implementation/maintenance cost and users’
benefits should be weighed. As users of financial
statements, what is your opinion on the matter?

Question

11

22%

A

B

N = 50

4%

2

Response Results

C

74%

37

Around 70% of respondents believe that when setting accounting standards, it is necessary to weigh thecompany’s implementation and management cost and users’ benefit.

Question 8.
Weighing Cost and Benefit

18

2

11%

1

N = 19

5%

16

9
29%

C：Unsure.

B：Even with high cost, would like more information.

1

N = 31

3%

68%

21

Industries with low volume of operating lease

A：Weighing of cost and benefit is necessary.

84%

Industries with high volume of operating lease

When looking at the results after dividing the industries into high and low volume operating lease,around 80% of industries with high volume operating lease respondents agree for cost benefit weighing.

Question 8.
Weighing Cost and Benefit (Industry Trend)