Document ID: chunk:federal_register_of_legislation:F2023C00188:reg:7:p83
Version: federal_register_of_legislation:F2023C00188
Segment Type: reg
Provision Reference: reg 7 (pt 83/91)
Character Range: 234992–237894

the prevalence of below-market leases in the not-for-profit sector.

BC151        The Board considered whether to:

(a)                    require retrospective application of this Standard, without any relief on initial application;

(b)                   permit a not-for-profit lessee to continue its existing accounting for such leases, in a similar manner to the relief specified for other transactions; or

(c)                    permit a not-for-profit lessee access to a similar level of relief on initial application of this Standard as is available to a for-profit entity on adoption of AASB 16.

BC152        The Board decided that it should, at a minimum, permit a not-for-profit lessee access to a similar level of relief on initial application of this Standard as is available to a for-profit entity on adoption of AASB 16.  However, having regard to its decisions on the measurement of assets acquired in a lease (see paragraph BC84 above), the Board concluded it would be appropriate to modify the transitional provisions set out in AASB 16 to require the lease asset, on initial adoption of this Standard, to be measured at its fair value rather than by reference to the lease liability.

BC153        In its discussion, the Board decided not to permit a not-for-profit lessee to continue its existing accounting for such leases, in a similar manner to the relief specified for other transactions.  The Board made this decision having regard to its concern the financial position of a not-for-profit entity may be misrepresented, and the lack of comparability between entities if such leases were entered into before and after adoption of this Standard.

Early adoption of AASB 1058 before AASB 16

BC154        The Board did not want to unintentionally require a lessee to fair value a right-of-use asset twice, once on transition to AASB 1058, if early adopted, and again on transition to AASB 16.  Having regard to this and the feedback received about the adequacy of the transitional provisions in ED 260, the Board decided to add early adoption transition requirements to AASB 1058.

BC155        The scope of AASB 1058 extends to leases provided to a not-for-profit entity on significantly below-market terms and conditions at inception principally to enable an entity to further its objectives.  Not-for-profit entities can apply AASB 1058 early before the mandatory application date of AASB 16, thereby applying AASB 1058 alongside AASB 117.  Under AASB 117, leases classified as operating leases do not give rise to a recognised asset of the lessee.  The Board considered whether a not-for-profit lessee should be required to recognise right-of-use assets arising from operating leases at fair value when applying AASB 1058 before adopting AASB 16, noting this approach would be consistent with the objective of this Standard.  However, the Board was conscious that it were to