FASB on Monday proposed clarifying the application of guidance in its new lease accounting standard to land easements.
The new lease accounting standard was issued in 2016 and requires balance sheet recognition by lessees for assets and liabilities created by all leases with terms of more than 12 months.
Land easements, also known as rights of way, represent the right to use, access, or cross another entity’s land for a specified purpose. Proposed Accounting Standards Update, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, was proposed to clarify that land easements should be evaluated under the new leases guidance.
But some stakeholders have said that it would be costly and complex to evaluate all existing land easements that were not previously assessed under the existing leases guidance to determine if they meet the definition of a lease under the new standard. They said many of their land easements would not meet the definition of a lease or are prepaid and already recognized on the balance sheet.
The proposal addresses those concerns by providing an optional transition expedient for leases not previously assessed under the existing leases guidance.
“We encourage stakeholders to review the proposed ASU and share their views on whether they think its provisions would address the issues raised,” FASB Chairman Russell Golden said in a news release.
Comments on the proposal are due by Oct. 25 and can be submitted at FASB’s website.
—Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is a JofA editorial director.