Under anticipated IFRS and FASB changes, which statement about lessee accounting is true?

• A. Leases will be off-balance-sheet.
• B. The asset would be the fair value of the lease at signing.
• C. Only leases longer than 12 months are on balance sheet.
• D. The asset equals the right-to-use asset and PV of lease payments; all leases on balance sheet, with exception for leases under 12 months.

Answer: (D)

Under these changes, the lessee will recognize a right-to-use asset and a lease liability for almost every lease. The asset is not the fair value of the asset itself; it’s the right-to-use asset, measured at the present value of lease payments (plus any initial direct costs and prepayments in some cases). The liability represents the present value of the remaining lease payments, discounted at the rate the lessee would need to borrow to obtain the asset. This brings leases onto the balance sheet rather than leaving them off. There is an exception for short-term leases (12 months or less) where recognition on the balance sheet can be avoided if the entity elects the exemption. So the statement that best fits is that the asset equals the right-to-use asset and the present value of lease payments; all leases are on the balance sheet, with the exception for leases under 12 months.