Leases

Summary - As reported in its “Summary of Board Decisions” publication, the FASB met on December 2, 2020, and discussed feedback received to date during the post-implementation review (PIR) of FASB Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). The staff provided the FASB with a report of its activities as part of the PIR process and summarized feedback received to date based on its outreach meetings with financial statement users, agenda requests, and the September 2020 public Leases Roundtable.

While no technical decisions were made, the FASB staff discussed feedback related to the importance of leasing information to financial statement users, the lessee’s application of the incremental borrowing rate and nonpublic lessee’s application of the risk-free rate, embedded leases, lease modifications, allocation of lease payments, and other ancillary issues. The FASB staff will perform additional research and outreach on the practical expedient that allows nonpublic lessees to use the risk-free rate as the lease discount rate. Specifically, the FASB staff’s research will consider the appropriateness of the risk-free rate and whether the practical expedient should be applied at the underlying class of asset level rather than at an entity-wide level. That research is expected to be considered at a future date as part of agenda request activities. The FASB staff will also consider providing additional educational materials to clarify some aspects of Topic 842 for certain groups of stakeholders. The FASB staff will continue to perform general outreach with stakeholders and continue to accumulate their feedback for presentation to the FASB at future meetings.

The FASB also discussed feedback received to date during the post-implementation review (PIR) of ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB staff provided the board with a report of the its activities as part of the PIR process and summarized feedback received to date based on its direct outreach with stakeholders and monitoring of publicly available information.

While no technical decisions were made, the FASB staff discussed feedback related to areas such as purchased financial assets that do not qualify for purchased financial assets with credit deteriorated (PCD) accounting treatment, the accounting and disclosure of troubled debt restructurings (TDRs), scope of financial assets included in Update 2016-13 (including trade receivables), and disclosures. The FASB staff will perform additional research and outreach on the accounting for non-PCD financial assets and TDRs to be considered at a future date as part of agenda request activities. In addition, the FASB staff will continue to monitor feedback related to the scope of financial assets included in and disclosures under Update 2016-13. The FASB staff also will continue to perform general outreach with stakeholders and continue to accumulate their feedback for presentation to the FASB at future meetings. This will include continuing dialogue seeking feedback from prudential regulators.

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Exposure Draft - Proposed Accounting Standards Update 2020-700 —Leases (Topic 842): Targeted Improvements

Summary - The FASB issued a proposed ASU intended to improve three areas of the leases guidance. Stakeholders are encouraged to review and provide comments on the proposed changes by December 4, 2020.

The amendments in the proposed ASU address the following areas:

For lessors, it would amend 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, 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 is expected to more faithfully represent the economics underlying the lease.
For lessees, it would provide the option 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; that option would be available as an entity-wide accounting policy election.
Finally, for both lessees and lessors, it would change the requirements when there is an early termination of 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.

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Leases – FASB Offers Limited Effective Date Delays on Revenue Recognition and Leases Standards

Summary - The FASB issued an Accounting Standards Update (ASU) that grants a one-year effective date delay for certain companies and organizations applying the revenue recognition and leases guidance. Early application continues to be permitted.

The ASU permits private companies and not-for-profit organizations that have not yet applied the revenue recognition standard to do so for annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020.

For leases, the ASU provides an effective date deferral to private companies, private not-for-profit organizations, and public not-for-profit organizations that have not yet issued (or made available) their financial statements reflecting the adoption of the guidance. It is intended to provide near-term relief for certain entities for whom the leases adoption is imminent.

Under the ASU, private companies and private not-for-profit organizations may apply the new leases standard for fiscal years beginning after December 15, 2021, and to interim periods within fiscal years beginning after December 15, 2022. Public not-for-profit organizations that have not yet issued (or made available to issue) financial statements reflecting the adoption of the leases guidance may apply the standard for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

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Leases – New Edition of Accounting for Leases Interpretation Published

We have published a new edition of our Interpretation, Accounting for Leases. This new edition includes guidance covering:

ASU No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities;
ASU No. 2020-02, Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842); and
FASB Staff Q&A: Topic 842 and Topic 840, Accounting For Lease Concessions Related to the Effects of the Covid-19 Pandemic

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Exposure Draft - Proposed Accounting Standards Update 2020-300 —Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities

Summary - The FASB issued a proposed Accounting Standards Update (ASU) that would grant a one-year effective date delay for certain stakeholders applying leases and revenue recognition guidance. Stakeholders are encouraged to review and provide comment on the proposed ASU by May 6, 2020.

The leases effective date deferral would be limited to private companies, private not-for-profit organizations, and public not-for-profit organizations that have not yet issued their financial statements. It would provide near-term relief for certain entities for whom the leases standard is currently effective who have rapidly approaching year-end dates and for entities for whom the leases effective date is imminent.

Under the proposed ASU, private companies and private not-for-profit organizations would have the option to apply the new leases standard for fiscal years beginning after December 15, 2021, and to interim periods within fiscal years beginning after December 15, 2022. Public not-for-profit organizations that have not yet issued financial statements would have the option to apply the standard for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The proposed effective date deferral for revenue recognition would be limited to private company franchisors. Those stakeholders would have the option to apply the new standard for annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020.

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FASB Proposed Accounting Standards Update 2018-310 —Leases (Topic 842) —Codification Improvements for Lessors

Summary - The FASB has issued a proposed Accounting Standards Update (ASU) that would address potential lessor implementation issues related to ASU No. 2016-02, Leases (Topic 842).

The proposed ASU aligns the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842, with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in Topic 820, Fair Value Measurement) should be applied.

The proposed ASU would also require lessors within the scope of Topic 942, Financial Services—Depository and Lending, to present all “principal payments received under leases” within investing activities.

Stakeholders are encouraged to review and provide comment on the proposal by January 15, 2019.

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Leases (Topic 842): Narrow-Scope Improvements for Lessors

Summary - The new guidance mitigates transition complexity by requiring entities other than public business entities, including not-for-profit organizations and certain employee benefit plans, to implement the credit losses standard issued in 2016, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. This aligns the implementation date for their annual financial statements with the implementation date for their interim financial statements. The guidance also clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leases standard.

The effective date and transition requirements are the same as the effective dates and transition requirements in the credit losses standard, as amended by the new ASU.

An entity that has not yet adopted Topic 842 should apply ASU No. 2018-20 to all new and existing leases when the entity first applies Topic 842 and should apply the same transition method elected for Topic 842.

An entity that has adopted Topic 842 before the issuance of ASU No. 2018-20 should adopt ASU No. 2018-20 to all new and existing leases at the original effective date of Topic 842 for that entity as determined in paragraph 842-10-65-1(a) through (b).

Alternatively, an entity that has adopted Topic 842 may adopt ASU No. 2018-20 to all new and existing leases either:
1. In the first reporting period ending after the issuance of ASU No. 2018-20, or
2. In the first reporting period beginning after the issuance of ASU No. 2018-20.

An entity that has adopted Topic 842 before the issuance ASU No. 2018-20 should apply ASU No. 2018-20 to all new and existing leases either:
1. Retrospectively to all prior periods beginning with the fiscal years in which Topic 842 was initially applied, or
2. Prospectively.

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FASB Discusses Narrow-Scope Improvements for Lessors

Summary - As reported in its "Summary of Board Decisions" publication, the FASB met on October 31, 2018, and redeliberated the proposed amendments to Topic 842, Leases, for the following three issues related to lessor accounting in that Topic:

Issue 1: Sales Taxes and Other Similar Taxes Collected from Lessees. The FASB affirmed its decision to provide an accounting policy election for sales and other similar taxes not to be accounted for as lessor costs as provided in the proposed Accounting Standards Update.
Issue 2: Lessor Costs. The FASB decided to require that lessors exclude from variable payments all costs paid by a lessee directly to a third party. Additionally, the FASB decided that costs not part of the consideration in the contract that are paid by a lessor directly to a third party and are reimbursed by a lessee are considered lessor costs that the lessor should account for as variable payments.

Issue 3: Recognition of Variable Payments for Contracts with Lease and Nonlease Components. The FASB affirmed its decision to clarify paragraph 842-10-15-40, subject to additional amendments that would further clarify how and when variable payments may be allocated to a lease component only.

The FASB also discussed transition and effective dates. For entities that have not yet adopted the amendments in Accounting Standards Update No. 2016-02, Leases (Topic 842), the FASB decided to align the transition and effective date guidance of a final Update with the guidance in the amendments in Update 2016-02.

For entities that have already adopted Update 2016-02 at the time a final Update is issued, the Board decided that the effective date should be the original effective date of Update 2016-02 for those entities. Alternatively, those entities may adopt the amendments either: (1) in the first reporting period ending after issuance of the Update; or (2) in the first reporting period following the issuance of the Update. The FASB decided to allow either prospective application or retrospective application for entities that have already adopted the amendments in Update 2016-02.

The FASB decided that the amendments apply to all new and existing leases.

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Leases (Topic 842): Targeted Improvements - FASB ASU No. 2018-11

Summary - The FASB has issued Accounting Standards Update (ASU) No. 2018-11, Leases (Topic 842): Targeted Improvements. This ASU is intended to reduce costs and ease implementation of the leases standard for financial statement preparers.

“The targeted improvements in the ASU address areas our stakeholders identified as sources of unnecessary cost or complexity in the leases standard,” stated FASB Chairman Russell G. Golden. “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.”

ASU 2018-11 provides a new transition method and a practical expedient for separating components of a contract.

Transition: Comparative Reporting at Adoption

The amendments ASU 2018-11 provide entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption consistent with preparers’ requests. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP in Topic 840, Leases.

An entity that elects this additional (and optional) transition method must provide the required Topic 840 disclosures for all periods that continue to be in accordance with Topic 840. The amendments do not change the existing disclosure requirements in Topic 840 (for example, they do not create interim disclosure requirements that entities previously were not required to provide).

Separating Components of a Contract

The amendments in ASU 2018-11 provide lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue guidance (Topic 606) and both of the following are met:

The timing and pattern of transfer of the nonlease component(s) and associated lease component are the same.
The lease component, if accounted for separately, would be classified as an operating lease.

An entity electing this practical expedient (including an entity that accounts for the combined component entirely in Topic 606) is required to disclose certain information, by class of underlying asset, as specified in the ASU.

Effective Date

The amendments in ASU 2018-11 related to separating components of a contract affect the amendments in ASU No. 2016-02, which are not yet effective but can be early adopted.

For entities that have not adopted Topic 842 before the issuance of this ASU, the effective date and transition requirements for the amendments in this update related to separating components of a contract are the same as the effective date and transition requirements in ASU 2016-02.

For entities that have adopted Topic 842 before the issuance of ASU 2018-11, the transition and effective date of the amendments related to separating components of a contract in this ASU are as follows:

The practical expedient may be elected either in the first reporting period following the issuance of this ASU or at the original effective date of Topic 842 for that entity.
The practical expedient may be applied either retrospectively or prospectively.

All entities, including early adopters, that elect the practical expedient related to separating components of a contract in this ASU must apply the expedient, by class of underlying asset, to all existing lease transactions that qualify for the expedient at the date elected.

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Codification Improvements to Topic 842, Leases - FASB ASU No. 2018-10

Summary - The FASB has issued Accounting Standards Update (ASU) No. 2018-10, Codification Improvements to Topic 842, Leases.

ASU No. 2018-10, among other things, amends Topic 842 as follows:

Issue 1: Residual Value Guarantees - Paragraph 460-10-60-32 in Topic 460, Guarantees - This paragraph incorrectly refers readers to the guidance in Topic 842 about sale-leaseback-sublease transactions, when, in fact, it should refer readers to the guidance about guarantees by a seller-lessee of the underlying asset’s residual value in a sale and leaseback transaction. The amendment corrects the cross-reference in paragraph 460-10-60-32.

Issue 2: Rate Implicit in the Lease - The amendment clarifies that a rate implicit in the lease of zero should be used when applying the definition of the term “rate implicit” in the lease results in a rate that is less than zero.

Issue 3: Lessee Reassessment of Lease Classification - The amendment consolidates the requirements about lease classification reassessments into one paragraph and better articulates that an entity should perform the lease classification reassessment on the basis of the facts and circumstances, and the modified terms and conditions, if applicable, as of the date the reassessment is required.

Issue 4: Lessor Reassessment of Lease Term and Purchase Option - The amendment clarifies that a lessor should account for the exercise by a lessee of an option to extend or terminate the lease or to purchase the underlying asset as a lease modification unless the exercise of that option by the lessee is consistent with the assumptions that the lessor made in accounting for the lease at the commencement date of the lease (or the most recent effective date of a modification that is not accounted for as a separate contract).

Issue 5: Variable Lease Payments That Depend on an Index or a Rate - The amendment clarifies that a change in a reference index or rate upon which some or all of the variable lease payments in the contract are based does not constitute the resolution of a contingency subject to the guidance in paragraph 842-10-35-4(b). Variable lease payments that depend on an index or a rate should be remeasured, using the index or rate at the remeasurement date, only when the lease payments are remeasured for another reason (that is, when one or more of the events described in paragraph 842-10-35- 4(a) or (c) occur or when a contingency unrelated to a change in a reference index or rate under paragraph 842-10-35-4(b) is resolved).

Issue 6: Investment Tax Credits - There is an inconsistency in terminology used about the effect that investment tax credits have on the fair value of the underlying asset between the definition of the term rate implicit in the lease and the lease classification guidance in paragraph 842-10-55-8. The amendment removes that inconsistency by clarifying that the period covered by a lessor-only option to terminate the lease is included in the lease term.

Issue 7: Lease Term and Purchase Option - The description in paragraph 842-10-55- 24 about lessor-only termination options is inconsistent with the description in paragraph 842-10-55- 23 about the noncancellable period of a lease. The amendment removes that inconsistency by clarifying that the period covered by a lessor-only option to terminate the lease is included in the lease term.

Issue 8: Transition Guidance for Amounts Previously Recognized in Business Combinations - The transition guidance for lessors in paragraph 842-10-65-1(h)(3) is unclear because it relates to leases classified as direct financing leases or sales-type leases under Topic 840, while the lead-in sentence to paragraph 842-10-65-1(h) provides transition guidance for leases classified as operating leases under Topic 840. The amendment clarifies that paragraph 842-10-65-1(h)(3) applies to lessors for leases classified as direct financing leases or sales-type leases under Topic 842, not Topic 840. In other words, paragraph 842- 10-65-1(h)(3) applies when an entity does not elect the package of practical expedients in paragraph 842-10-65-1(f), and, for a lessor, an operating lease acquired as part of a previous business combination is classified as a direct financing lease or a sales-type lease when applying the lease classification guidance in Topic 842. The amendment also cross-references to other transition guidance applicable to those changes in lease classification for lessors.

Issue 9: Certain Transition Adjustments - The amendments clarify whether to recognize a transition adjustment to earnings rather than through equity when an entity initially applies Topic 842 retrospectively to each prior reporting period.

Issue 10: Transition Guidance for Leases Previously Classified as Capital Leases under Topic 840 - Paragraph 842-10-65-1(r) provides guidance to lessees for leases previously classified as capital leases under Topic 840 and classified as finance leases under Topic 842. Paragraph 842-10-65-1(r)(4) provides subsequent measurement guidance before the effective date when an entity initially applies Topic 842 retrospectively to each prior reporting period, but it refers readers to the subsequent measurement guidance in Topic 840 about operating leases. It should refer them to the subsequent measurement guidance applicable to capital leases. The amendment corrects that reference.

Issue 11: Transition Guidance for Modifications to Leases Previously Classified as Direct Financing or Sales-Type Leases under Topic 840 - Paragraph 842-10-65-1(x) provides transition guidance applicable to lessors for leases previously classified as direct financing leases or sales-type leases under Topic 840 and classified as direct financing leases or sales-type leases under Topic 842. For modifications to those leases beginning after the effective date, paragraph 842-10-65-1(x)(4) refers readers to other applicable guidance in Topic 842 to account for the modification, specifically paragraphs 842-10-25-16 through 25- 17, depending on how the lease is classified after the modification. Stakeholders noted that it should refer to how the lease is classified before the modification to be consistent with the guidance provided in paragraphs 842-10-25-16 through 25-17. The amendment corrects that inconsistency.

Issue 12: Transition Guidance for Sale and Leaseback Transactions - The amendments clarify that the transition guidance on sale and leaseback transactions in paragraph 842-10-65-1(aa) through (ee) applies to all sale and leaseback transactions that occur before the effective date and corrects the referencing issues noted.

Issue 13: Impairment of Net Investment in the Lease - Paragraph 842-30-35-3 provides guidance to lessors for determining the loss allowance of the net investment in the lease and describes the cash flows that should be considered when the lessor determines that loss allowance. Stakeholders questioned whether the guidance, as written, would accelerate and improperly measure the loss allowance because the cash flows associated with the unguaranteed residual asset appear to be excluded from the evaluation. The amendment clarifies the application of the guidance for determining the loss allowance of the net investment in the lease, including the cash flows to consider in that assessment.

Issue 14: Unguaranteed Residual Asset - The amendment clarifies that a lessor should not continue to accrete the unguaranteed residual asset to its estimated value over the remaining lease term to the extent that the lessor sells substantially all of the lease receivable associated with a direct financing lease or a sales-type lease, consistent with Topic 840.

Issue 15: Effect of Initial Direct Costs on Rate Implicit in the Lease - The ordering of the illustration in Case C of Example 1 in paragraphs 842-30-55- 31 through 55-39 raised questions about how initial direct costs factor into determining the rate implicit in the lease for lease classification purposes for lessors only. The amendment more clearly aligns the illustration to the guidance in paragraph 842-10-25-4.

Issue 16: Failed Sale and Leaseback Transaction - The amendment clarifies that a seller lessee in a failed sale and leaseback transaction should adjust the interest rate on its financial liability as necessary to ensure that the interest on the financial liability does not exceed the total payments (rather than the principal payments) on the financial liability. This clarification is also reflected in the relevant illustration on failed sale and leaseback transactions that is contained in Subtopic 842-40.

Effective Date

The amendments in ASU No. 2018-10 affect the amendments in ASU No. 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of ASU No. 2018-10, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842.

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Leases (Topic 842): Narrow-Scope Improvements for Lessors - FASB Proposed ASU No. 2018-260

Summary - The FASB has issued a proposed accounting standards update (ASU) that would reduce costs and ease implementation of the Leases standard (ASU No. 2016-02, Leases (Topic 842))for financial statement preparers. The proposal would also clarify a specific requirement in the standard related to lessor accounting. Stakeholders are encouraged to review and provide comment on the proposal by September 12, 2018.

Specifically, this proposed ASU addresses the following issues facing lessors when applying the Leases standard:

Sales taxes and other similar taxes collected from lessees. The guidance would permit lessors, as an accounting policy election, to not evaluate whether these taxes are costs of the lessor or costs of the lessee. Instead, the lessor would account for them as costs of the lessee and exclude the amounts from lease revenue and the associated expense.
Certain lessor costs paid directly by lessees. The guidance requires lessors to exclude those costs from variable payments, and, therefore, from variable (lease) revenue and the associated expense when the amount of those costs is not readily determinable by the lessor.
Recognition of variable payments for contracts with lease and nonlease components. The guidance requires lessors to allocate (rather than recognize as currently required in the new Leases standard) certain variable payments to the lease and nonlease components when the changes in facts and circumstances on which the variable payment is based occur. After the allocation, the amount of variable payments allocated to the lease component would be recognized in accordance with the new Leases standard, while the amount allocated to nonlease components would be recognized in accordance with other accounting guidance (such as revenue from contracts with customers).

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Leases - FASB Discusses Targeted Improvements to Topic 842

Summary - As reported in its "Summary of Board Decisions" publication, the FASB met on March 7, 2018, and discussed feedback received on proposed Accounting Standards Update (ASU, Leases (Topic 842): Targeted Improvements, specific to the proposed additional and optional transition method to adopt the new lease requirements of ASU 2016-02, Leases (Topic 842).

The FASB decided to affirm the proposed transition method and to clarify that if an entity elects this new transition method, the comparative periods should include the disclosures required under Topic 840, Leases, including the operating lease obligations disclosure in paragraph 840-20-50-2.

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Land Easement Practical Expedient for Transition to Topic 842 - FASB ASU No. 2018-01 - Leases (Topic 842)

Summary - The FASB has issued Accounting Standards Update (ASU) No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, which clarifies the application of the new leases guidance to land easements and eases adoption efforts for some land easements.

ASU 2018-01 is expected to reduce the cost of adopting the new leases standard for certain land easements. It is also an attempt to help ensure that companies can make a successful transition to the standard without compromising the quality of information provided to investors about these transactions.

Land easements (also commonly referred to as rights of way) represent the right to use, access, or cross another entity’s land for a specified purpose. Land easements are used by utility and telecommunications companies, for example, when they need to take a small strip of land, or easement, to bury wires. Not all companies have historically accounted for them as leases.

Stakeholders pointed out that the requirement to evaluate all old and existing land easements, sometimes numbering in the tens of thousands, to determine if they meet the definition of a lease under the new standard could be very costly. They also noted there would be limited benefit to applying this requirement, as many of their land easements would not meet the definition of a lease, or even if they met that definition, many of their easements are prepaid and, therefore, already are recognized on the balance sheet.

The land easements ASU addresses this by:

Providing an optional transition practical expedient that, if elected, would not require an organization to reconsider their accounting for existing land easements that are not currently accounted for under the old leases standard; and
Clarifying that new or modified land easements should be evaluated under the new leases standard, once an entity has adopted the new standard.

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Leases - FASB Discusses Improvements to Leases Standard

Summary - As reported in its "Summary of Board Decision" publication, the FASB met on January 24, 2018, and discussed the feedback received on its proposed ASU, Technical Corrections and Improvements to Recently Issued Standards: II. Accounting Standards Update No. 2016-02, Leases (Topic 842).

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Leases (Topic 842) - Targeted Improvements - FASB Proposed ASU 2018-200

Summary - The FASB has issued a proposed Accounting Standards Update (ASU) intended to reduce costs and ease implementation of the new Leases standard for financial statement preparers. The FASB stated that it is part of their ongoing effort to proactively address implementation issues raised by stakeholders to ensure a successful transition to the new Leases standard. Comments on the proposed improvements are due by February 5, 2018.

The proposed ASU would simplify transition requirements and, for lessors, provide a practical expedient for the separation of nonlease components from lease components. Specifically, the amendments would:

Add an option for transition to ASU No. 2016-02, Leases (Topic 842), that would permit an organization 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; and

Add a practical expedient that would permit lessors to not separate nonlease components from the associated lease components if certain conditions are met. This practical expedient could be elected by class of underlying assets; if elected, certain disclosures would be required.

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Leases (Topic 842) - Land Easement Practicel Expediant for Transition to Topic 842 - FASB Proposed ASU 2017-290

Summary - The FASB has issued a proposed Accounting Standards Update (ASU), Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, intended to clarify the application of the new leases guidance to land easements. Stakeholders were asked to review and provide comments on the proposed ASU by October 25, 2017.

Land easements (also commonly referred to as rights of way) represent the right to use, access, or cross another entity's land for a specified purpose. To address the diversity in practice that exists in how organizations currently account for land easements, this proposed ASU would clarify that land easements should be evaluated under the new leases guidance.

However, some stakeholders have pointed out that the requirement to evaluate all existing land easements not previously assessed under the existing leases guidance to determine if they meet the definition of a lease under the new leases standard would be costly and complex (e.g., because of the volume and age of those easements). They also noted there would be limited benefit to applying this requirement, as many of their land easements would not meet the definition of a lease, or even if they met that definition, many of their easements are prepaid and, therefore, already are recognized on the balance sheet.

Consequently, the proposed ASU also would address concerns about the costs and complexity of complying with the transition requirements of the new leases guidance by providing an optional transition expedient for land easements not previously assessed under the existing leases guidance.

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Technical Corrections and Impvoements to Recently Issued Standards - Accounting Standards Update No. 2016-02, Leases (Topic 842) - FASB Proposed ASU 2017-310

Summary - The FASB has issued a proposed ASU, Technical Corrections and Improvements to Recently Issued Standards: Accounting Standards Update No. 2016-02, Leases (Topic 842). On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions.

The Board has an ongoing project on its agenda about technical corrections and improvements to clarify the Codification or to correct unintended application of guidance. Those items generally are not expected to have a significant effect on current accounting practice or create a significant administrative cost for most entities. The amendments in this proposed Update are of a similar nature to the items typically addressed in the Codification improvements project. However, the FASB decided to issue a separate proposed Update for technical corrections and improvements related to Update 2016-02 to increase stakeholder awareness of the proposed amendments and to expedite the improvements.

Comments on this proposed ASU are due November 13, 2017.

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Leases - FASB Discusses Leasing Standard Implementation

Summary - As discussed in its "Summary of Board Decisions" publication, the FASB met on August 2, 2017, and decided to propose amendments to the transition provisions in Topic 842 for certain land easements that existed before that Topic's effective date. Specifically, as a practical expedient, the FASB would provide optional transition guidance that would permit an entity not to apply Topic 842 to land easements that existed before that Topic's effective date, provided that the entity does not currently apply Topic 840 to those land easements. An entity should continue to apply its current accounting policies for accounting for land easements that existed before the effective date of Topic 842. When Topic 842 becomes effective, an entity will apply Topic 842 to all new (or modified) land easement arrangements to determine whether the arrangements should be accounted for as leases under Topic 842. The Board also decided to amend Example 10 of Subtopic 350-30 on intangibles other than goodwill to eliminate the perceived inconsistency between that example and Topic 842.

The FASB also began redeliberating the amendments in proposed Accounting Standards Update, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. The meeting topic was the liability for future policy benefits for nonparticipating traditional and limited-payment insurance contracts. The FASB reached a number of decisions, including the following:

Assumptions used to measure the liability for future policy benefits for nonparticipating traditional and limited-payment contracts should be updated.
The effect of assumption changes should be calculated and recorded on a catch-up basis in net income.
Cash flow assumptions should be reviewed and updated on an annual basis, at the same time every year, or more frequently in interim reporting periods if evidence suggests that earlier cash flow assumptions should be revised.
The provision for risk of adverse deviation and premium deficiency tests should be eliminated for nonparticipating traditional and limited-payment contracts. The net premium ratio should be capped at 100 percent.

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Leases Implementation - FASB Discusses Lease Standard Implementation and Other Matter

Summary - As reported in its "Summary of Board Decisions" publication, the FASB met on June 21, 2017, and decided to make various proposed technical corrections and improvements to the amendments in ASU No. 2016-02, Leases (Topic 842), including:

For entities that have early adopted Topic 842, the FASB decided that the proposed amendments would be effective upon issuance of a final Update and would follow the transition guidance in Topic 842. For entities that have not adopted Topic 842, the FASB decided that the effective date and transition requirements for the proposed amendments should be the same as the effective date and transition requirements in Topic 842.

The FASB concluded that the expected benefits of the proposed changes would justify the costs.

The FASB directed its staff to draft a joint proposed ASU, which would include the technical corrections to Update 2016-02 and the technical corrections to ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, for vote by written ballot, with a comment period of 45 days.

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FASB Accounting Standards Update No. 2016-02 -Leases (Topic 842)

Summary - The FASB has issued its new lease accounting guidance in Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:

A lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and
A right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term.

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.

The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing.

Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Nonpublic business entities should apply the amendments for fiscal years beginning after December 15, 2019 (i.e., January 1, 2020, for a calendar year entity), and interim periods within fiscal years beginning after December 15, 2020. Early application is permitted for all public business entities and all nonpublic business entities upon issuance.

Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach.

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