FASB attempts to make lease accounting implementation easier

By Ken Tysiac

FASB has issued targeted changes to its new lease accounting standard that are designed to make implementation easier and reduce costs for financial statement preparers.

Accounting Standards Update (ASU) No. 2018-11, Leases (Topic 842): Targeted Improvements, released Monday, makes transition requirements less burdensome and provides lessors with a practical expedient for separating nonlease components from lease components.

The standard provides:

  • An option to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in its financial statements.
  • A practical expedient permitting lessors to not separate nonlease components from the associated lease component if certain conditions are met.

“The targeted improvements in the ASU address areas our stakeholders identified as sources of unnecessary cost or complexity in the leases standard,” FASB Chairman Russell Golden said in a news release. “They represent the FASB’s commitment to proactively address implementation issues raised by our stakeholders to ensure a successful transition to the new standard without compromising the quality of information provided to investors.”

FASB issued the original standard, ASU No. 2016-02, Leases (Topic 842), on Feb. 25, 2016. Companies implementing the standard have complained about unanticipated costs related to the modified retrospective transition method, particularly regarding the method’s comparative period reporting requirements.

Meanwhile, lessors were concerned about the requirement for lessors to separate nonlease components from the associated lease component. The practical expedient granted to lessors Monday is similar to an expedient provided for lessees but is limited to certain circumstances.

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

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