Leases

AMENDMENTS TO ACCOUNTING STANDARDS UPDATE NO. 2016-02, LEASES (TOPIC 842)

 

Overview


On February 25, 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842). The new guidance establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases.

Unlike other recently issued, significant Updates (such as revenue recognition and credit losses), the FASB did not create a Transition Resource Group (TRG) for the new leases guidance. This is primarily because many of the concepts used in Topic 842 are similar to those used in Topic 840. However, while a formal TRG was not created, the Board and the staff have assisted stakeholders during this transitional period by responding to inquiries received and proactively seeking feedback, whenever possible.
 
The objective of the Board’s standard-setting activities related to Topic 842, Leases, has been to address stakeholders’ concerns and ensure a smooth transition to the new Topic.
 
The amendments in the following Updates clarify or affect certain aspects of Topic 842 but do not change the core principle of the guidance in Topic 842.
 
Codification Improvements
 
On September 27, 2017, the Board issued proposed Accounting Standards Update, Technical Corrections and Improvements to Recently Issued Standards: II. Accounting Standards Update No. 2016-02, Leases (Topic 842). Targeted Improvements
 
On January 5, 2018, the Board issued proposed Accounting Standards Update, Leases (Topic 842)—Targeted Improvements. Land Easements
 
On January 25, 2018, the Board issued Accounting Standards Update No. 2018-01, Leases (Topic 842)—Land Easement Practical Expedient for Transition to Topic 842.

Effective Dates


The amendments in the above Update affect the guidance in Accounting Standards Update No. 2016-02, Leases (Topic 842), which is not yet effective but may be early adopted, and Example 10 of Subtopic 350-30, Intangibles—Goodwill and Other—General Intangibles Other Than Goodwill. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Update 2016-02. An entity that early adopted Topic 842 should apply the amendments in the above Update upon issuance.
 
If finalized, the proposed amendments in the above proposed Updates similarly would affect the guidance in Update 2016-02. As currently proposed, the effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Update 2016-02. An entity that early adopted Topic 842 would apply the amendments in the proposed Updates upon issuance. The proposed Update on targeted improvements to leases provides an alternative transition method that would allow entities to apply the transition requirements of Topic 842 as a cumulative-effect adjustment to equity in the period of adoption.
 

What Entities Are Affected by the New Guidance in the Updates?


The amendments in this Update, and if finalized, the proposed Updates, affect entities with transactions included within the scope of Topic 842. The scope of that Topic includes entities that enter into contracts meeting the definition of a lease. The amendments in Update 2018-01 also affect guidance within the scope of Subtopic 350-30.
 

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