United States

FASB discusses proposed amendments to ASC 842


The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (ASC 842), in February 2016. Recently, stakeholders (both lessors and lessees) have provided the FASB with information related to difficulties encountered in implementation of the standard. The FASB discussed these issues at its November 29, 2017 meeting, and voted to propose amendments to ASC 842. The effects of these proposed changes would be:

  • Entities would be provided with an election to adopt the provisions using another transition method. Under ASC 842 as written, entities are required to measure leases as of the beginning of the earliest period presented in their financial statements, using the modified retrospective method prescribed by ASC 842. The proposal discussed at the November 29, 2017 meeting would allow entities to apply ASC 842 as of the effective date, rather than as of the beginning of the earliest period presented. Entities that elected this approach would report comparative periods in accordance with ASC 840, “Leases,” (including disclosure requirements).
  • Lessors would be able to apply a practical expedient under which they could elect, by class of asset, to not separate nonlease components from lease components and account for the components as a single lease component if both of the following conditions are met: (a) the timing and pattern of revenue recognition for the lease and nonlease component(s) are the same, and (b) the combined lease component is classified as an operating lease. If a lessor elects this approach, it would be required to disclose the election of the policy, the class or classes of assets to which it has applied the election and the nature of the nonlease components that it has included in the single lease component.

The FASB will draft an Exposure Draft of a proposed ASU, with the related comment period expected to be 30 days. Although the FASB has not set a targeted date by which the Exposure Draft would be released, it is expected to be released in the near future because of the number of entities preparing for transition to the new guidance.

RSM resources to assist entities in understanding ASC 842 include: