EFRAG Draft Comment Letter on Lease Liability in a Sale and Leaseback

​​On 27 November 2020, the IASB issued Exposure Draft ED/2020/4 Lease Liability in a Sale and Leaseback (Proposed Amendments to IFRS 16) (‘the ED’).

The proposed amendment would specify the method a seller-lessee uses to initially measure the right-of-use asset and liability arising in a sale and leaseback transaction and how the seller-lessee subsequently measures that liability.

EFRAG supports the proposals in the ED as they provide practical guidance on an area not currently addressed by the IFRS 16 while relying on existing measurement principles. 

However, EFRAG considers that there may be a broader issue to consider by the IASB because of a conflict in the principles in IFRS 16 regarding the exclusion of variable payments (not based on an index or rate) from the definition of lease payments, and the principle that a gain arising on the interest retained by the seller-lessee in a sale and leaseback tranasaction cannot be recognised . EFRAG therefore encourages the IASB to reconsider the matter more broadly as part of the future Post Implementation Review of IFRS 16.

Finally, EFRAG notes that there are challenges associated with the proposals in the ED, in particular the level of judgement involved in estimating the future lease payments. To address the matter, EFRAG suggests that the IASB considers additional disclosures regarding the judgement applied in estimating the future payments.

The DCL can be found here​.