FASB issued a proposal Tuesday that is designed to improve three targeted areas of its lease accounting guidance.
The proposed amendments are designed to represent FASB’s commitment to take timely action based on what the board learns during its post-implementation review process of major standards, FASB Chair Richard Jones said in a statement.
“In this case, it would address three areas brought to our attention by public company stakeholders from their experiences applying the leases standard,” Jones said.
Addressing challenges uncovered in the post-implementation review process is a priority for Jones, who became FASB’s chair in July.
The proposed amendments:
- Would amend for lessors the lease classification requirements for leases in which the lease payments are predominantly variable, by requiring lessors to classify and account for those leases as operating leases. In doing so, a FASB media advisory states that the risk of lessors recognizing losses at lease commencement for sales-type leases that are expected to be profitable would be mitigated and the resulting financial reporting would more faithfully represent the economics underlying the lease.
- Would provide the option for lessors to remeasure lease liabilities for changes in a reference index or a rate affecting future lease payments at the date that those changes take effect. The option would be available as an entity-wide accounting policy decision.
- Would change for lessees and lessors the requirements when there is an early termination from some leases within a contract that does not economically affect the remaining leases in that contract. In those circumstances, entities would be exempt from applying modification accounting to the remaining leases.
Comments are sought by Dec. 4 and can be made on FASB’s website.
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.