United States

FASB issues proposed amendments to ASC 842


The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (ASC 842), in February 2016. Stakeholders (both lessors and lessees) have provided the FASB with information related to difficulties encountered in implementation of the standard. To address these difficulties, the FASB recently issued a proposed Accounting Standards Update (ASU), Leases (Topic 842): Targeted Improvements. If finalized, the effects of the changes in this proposed ASU would be:

  • Entities would be provided with an election to adopt the provisions of ASC 842 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 transition method prescribed by ASC 842. The proposed ASU would allow entities to apply ASC 842 as of the effective date, rather than as of the beginning of the earliest period presented. Under this additional optional transition method, a cumulative-effect adjustment would be recognized in the opening balance of retained earnings in the period of adoption. 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 underlying assets, to not separate nonlease components from the related 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 single lease component is classified as an operating lease. If a lessor elects this approach, it would be required to disclose the election of the practical expedient, the class or classes of assets to which it has applied the election, and the nature of the nonlease components that it has included within the single lease component.

The proposed ASU is available for comment until February 5, 2018. If finalized, the effective date for the amendments in the proposed ASU would be the same as the effective date for ASU 2016-02.

ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for (a) a public business entity, (b) a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed or quoted on an exchange or an over-the-counter market and (c) an employee benefit plan that files financial statements with the SEC. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. RSM resources to assist entities in understanding ASC 842 include: