The Financial Reporting Council (FRC) is consulting on limited amendments to FRS 101 Reduced Disclosure Framework in relation to IFRS 16 Leases in a bid to reduce the administrative reporting burden
The consultation follows on from the 2016/17 annual review of FRS 101. The FRC says that IFRS 16 Leases requires a lessee to provide all lease disclosures in a single note or separate section in the financial statements, although information already presented elsewhere need not be duplicated, and may be cross-referenced instead.
The FRC says that although paragraph 52 of IFRS 16 does not conflict with the requirements of the regulations, it would result in unnecessary additional work that would provide minimal additional benefits to the users of the financial statements. Therefore, it is suggesting an exemption should be provided.
Paragraph 58 of IFRS 16 requires lessees to disclose ‘a maturity analysis of lease liabilities applying paragraphs 39 and B11 of IFRS 7 Financial Instruments: Disclosures separately from the maturity analysis of other financial liabilities.’
In addition, paragraphs 94 and 97 of IFRS 16 require lessors to disclose a maturity analysis of lease payments receivable from finance and operating leases respectively, without a cross-reference to IFRS 7.
FRS 101 currently provides an exemption against the requirements of IFRS 7, provided equivalent disclosures are included in the consolidated financial statements of the group. Therefore, as currently drafted, lessees could take an exemption from paragraph 58 of IFRS 16 by virtue of its cross-reference to IFRS 7, whereas lessors could not, as no similar cross-references to IFRS 7 exist.
On balance, the FRC advises that both lessees and lessors should be required to provide the maturity analyses of IFRS 16 as qualifying entities are already preparing and disclosing equivalent disclosures in IAS 17 Leases, and no issues have been raised in this respect, and the disclosures provide useful information on the financial position of a qualifying entity.
To achieve this, the regulations would be amended so that qualifying entities that are lessees are specifically prohibited from taking an exemption against paragraph 58 of IFRS 16 by virtue of the cross-reference to IFRS 7.
The FRC says it is only proposing one minor exemption from the requirement to provide a single disclosure note for all lease-related information. It believes that information about leasing arrangements is useful to users of the financial statements and therefore further exemptions should not be provided. Qualifying entities are already required to provide similar disclosures under IAS 17 Leases, therefore the costs of transition will be predominantly in relation to recognition and measurement, rather than disclosure which will be at a similar level to previous requirements.
The consultation seeks feedback on whether respondents agree with the proposed amendments to FRS 101, and in particular whether or not qualifying entities should be required to continue to provide detailed analyses of leases (with those required by IAS 17 Leases replaced with those required by IFRS 16 Leases).
The consultation closes on 31 March 2017.