FASB proposes lessor accounting amendments

By Ken Tysiac

FASB issued a proposal Monday that is designed to reduce costs and ease implementation of the new lease accounting standard for lessors

Proposed Accounting Standards Update, Leases (Topic 842): Narrow-Scope Improvements for Lessors, also aims to clarify a requirement in the standard that applies to lessor accounting.

Since the new lease accounting standard was issued in 2016, FASB has been monitoring feedback and assisting with implementation questions related to the standard. This dialogue led to the proposal issued Monday.

“This proposed accounting standard provides financial statement preparers relief and clarity in these areas and should help them implement the leases standard,” FASB Chairman Russell Golden said in a news release.

The proposal addresses:

  • Sales taxes and other similar taxes collected from lessees. The proposal would permit lessors to use an accounting policy election to not evaluate whether these taxes are costs of the lessor or costs of the lessee. The lessor would account for these costs as costs of the lessee and exclude the amounts from lease revenue and the associated expense.
  • Certain lessor costs paid directly by lessees. The proposal would address stakeholders’ concerns about the difficulty in determining certain lessor costs paid by lessees directly to third parties on behalf of the lessor. The proposal would require lessors to exclude those costs from variable payments when the amount of those costs is not readily determinable by the lessors. These costs would therefore also be excluded from variable (lease) revenue and the associated expense.
  • Recognition of variable payments for contracts with lease and nonlease components. The proposal would clarify the accounting by lessors for variable payments that relate to both a lease component and a nonlease component. The proposal would require lessors to allocate (rather than recognize as currently required in the new lease accounting standard) certain variable payments to the lease and nonlease components when the changes in facts and circumstances on which the variable payment is based occur. After allocation, the amount of the variable leases payment allocated to the lease component would be recognized in accordance with the new lease accounting standard. The amount allocated to nonlease components would be recognized in accordance with other accounting guidance, such as the new revenue recognition standard.

Comments on the proposal can be submitted by Sept. 12 at FASB’s website.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is a JofA editorial director.

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