The following just in ‘hot off the press’ from our financial reporting content expert, Carmen Ridley AASB member.
The accounting treatment of peppercorn leases under the new revenue standard AASB 1058 Income of NFP Entities has caused significant discussion in relation to the recognition of a right-of-use asset at fair value at the date of inception of the lease (or transition to AASB 1058 for existing leases).
The AASB board papers for the 13 November meeting in Sydney include a proposal to grandfather peppercorn leases due to the uncertainties around the ACNC Legislative Review and future reporting requirements for NFP entities.
The alternatives proposed are:
- Do nothing, i.e. require NFP entities to fair value the right of use arising from peppercorn leases on adoption of AASB 1058
- Relieve all NFP entities (public and private sector) from initially measuring ROU assets from all peppercorn leases at fair value
- Relieve private sector NFP entities from initially measuring ROU assets from all peppercorn leases at fair value
- Relieve all NFP entities (public and private sector) from initially measuring ROU assets from existing (i.e. those in place at application date of AASB 1058) peppercorn leases at fair value
- Relieve private sector entities from initially measuring ROU assets from existing (i.e. those in place at application date of AASB 1058) peppercorn leases at fair value
The link to the relevant paper is included here: https://www.aasb.gov.au/admin/file/content102/c3/8.1_SP_PeppercornLeaseRelief_M168.pdf
If you or your clients are currently working through your peppercorn leases then you might want to consider pausing the project until the decisions of the AASB meeting on 13 November.
We would encourage you to read the paper before the board meeting and feel from to send any feedback/thoughts to Carmen at email@example.com prior to the Board meeting or if you want to come along and listen to the discussions on 13 November in Sydney then you can register to attend on the AASB website (https://www.aasb.gov.au/AASB-Board/Public-attending-meetings.aspx)