FASB issues 16 minor amendments to lease accounting standard

By Ken Tysiac

FASB issued 16 minor amendments to its new lease accounting standard Thursday, clarifying rules and correcting application of guidance that the board had not intended when it created the standard.

The lease accounting standard (codified in Topic 842, Leases) was issued on Feb. 25, 2016, and takes effect for public companies and certain other entities in 2019. The amendments issued Thursday include issues brought to FASB's attention by stakeholders who were seeking help with implementation.

The amendments affect narrow aspects of the guidance issued in the lease accounting standard. FASB does not expect the clarifications to significantly affect current accounting practice or create significant implementation costs for most entities.

Issues addressed in the amendments are:

  • Residual value guarantees.
  • Rate implicit in the lease.
  • Lessee reassessment of lease classification.
  • Lessor reassessment of lease term and purchase option.
  • Variable lease payments that depend on an index or a rate.
  • Investment tax credits.
  • Lease term and purchase option.
  • Transition guidance for amounts previously recognized in business combinations.
  • Certain transition adjustments.
  • Transition guidance for leases previously classified as capital leases under Topic 840.
  • Transition guidance for modifications to leases previously classified as direct financings or sales-type leases under Topic 840.
  • Transition guidance for sale and leaseback transactions.
  • Impairment of net investment in the lease.
  • Unguaranteed residual asset.
  • Effect of initial direct costs on rate implicit in the lease.
  • Failed sale and leaseback transaction.

The amendments take effect at the same time as the leases standard. For entities that have early adopted the lease accounting standard, the amendments take effect upon issuance.

The update does not include amendments from proposed Accounting Standards Update, Leases (Topic 842): Targeted Improvements. That proposal for a new and optional transition method to adopt the new lease accounting standard will be issued by FASB in a future update that will result in additional amendments to transition paragraphs included in Thursday's update.

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

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