At a recent FASB/IASB joint meeting, the boards discussed the application of the proposed expected credit loss model to lease receivables.

In a summary of the decision, the boards tentatively decided that an entity could elect either to fully apply the proposed “three-bucket” model or to apply a simplified approach in which those lease receivables would have an impairment allowance measurement objective of lifetime expected credit losses at initial recognition and throughout the lease receivables’ life.

The simplified approach would reduce complexity in practice because an entity would not be required to track credit deterioration through the buckets of the three-bucket model.

The cash flows and the discount rate used in the measurement of the lease receivables would be used as the contractual cash flows and effective interest rate when assessing the lease receivables’ impairment allowance.

To address potential timing differences between the finalization of the proposed leases and impairment standards, the boards tentatively decided that the same approach described above would apply for lease receivables recognized by a lessor under the existing guidance in IAS 17, Leases, and FASB Accounting Standards Codification Topic 840, Leases.

To read the full meeting summary click here.