FASB simplifying leases standard implementation

FASB will make simplifications designed to reduce costs and decrease the challenges that financial statement preparers are facing as they implement the board’s new lease accounting standard.

The board recently decided to issue an Accounting Standards Update (ASU) that will:

• Provide an optional practical expedient for transition. Organizations that elect the practical expedient would not be required to consider their accounting for existing land easements that are not currently accounted for under FASB ASC Topic 840.
• Clarify that new or modified land easements should be evaluated under Topic 842 (the leases standard) once effective.

In addition, the board decided to issue a proposed ASU with a comment period of 30 days that would add an option for transition to Topic 842 that would enable an organization to not provide comparative period financial statements. Instead, an organization would apply the transition provisions of the lease accounting standard at its effective date.

The proposed ASU also would add a practical expedient that would permit lessors not to separate nonlease components from the related lease components if certain conditions are met. This practical expedient could be elected by class of underlying assets. Certain disclosures would be required of preparers who elect the practical expedient.

FASB issued its new lease accounting standard in February 2016. It requires lessees to recognize on the balance sheet assets and liabilities created by leases with terms of more than 12 months. The standard was created to provide more transparency about lessees’ responsibilities related to leases.

While implementing the standard, many preparers have faced challenges, especially in locating and extracting data from the numerous leases that exist in various locations throughout their organizations.