United States

FASB proposes narrow-scope amendments to ASC 842


The Financial Accounting Standards Board (FASB) recently issued a proposed Accounting Standards Update (ASU), Leases (Topic 842): Narrow-Scope Improvements for Lessors, to address the following issues lessors sometimes encounter when implementing ASU 2016-02, Leases (Topic 842):

  • Accounting for sales taxes and other similar taxes collected from lessees – If finalized, the proposed ASU would provide an accounting policy election whereby lessors could account for sales taxes and other similar taxes collected from lessees as costs of the lessee, and exclude the amounts from lease revenue and the associated expense.
  • Determination of certain lessor costs paid directly by lessees – If finalized, the proposed ASU would address concerns about the challenges encountered in determining certain lessor costs paid by lessees directly to third parties on behalf of the lessor by requiring lessors to exclude those costs from variable payments, and therefore from variable lease revenue, when the amount of those costs is not readily determinable by the lessor.
  • Recognition of variable payments for contracts with lease and nonlease components – If finalized, the proposed ASU would require lessors to allocate (rather than recognize as currently required) certain variable payments to lease and nonlease components when the changes in facts and circumstances on which the variable payment is based occur. The amount allocated to the lease component would be recognized as income in accordance with Topic 842, while the amount allocated to nonlease components would be recognized in accordance with other Topics of the FASB Accounting Standards Codification.

The proposed ASU is available for comment until September 12, 2018. If finalized, the effective date for the amendments in the proposed ASU for entities that have not adopted ASU 2016-02 would be the same as the effective date for ASU 2016-02. The FASB will determine the effective date of the proposed ASU for entities that early adopted ASU 2016-02 after it considers feedback on the proposed ASU.

Our Lease Accounting Resource Center includes information about the effective dates of ASU 2016-02 and other implementation matters.