Implementing the Leases Standard:
A Few Things to Consider
By Lisa Kaestle, FASB Assistant Project Manager

Eight months have passed since we issued our leases standard and during this time the FASB has been proactively working with stakeholders to discuss specific aspects of the standard where questions arose.

The FASB staff have received technical inquiries that have primarily focused on the following areas of guidance:
  • Definition of a lease
  • Lessee accounting
  • Lessor accounting
  • Discount rate
  • Transition.
Lessee accounting and transition have received the most inquiries. This is likely because lessee accounting is the main focus of the standard, and because transition is one of the first areas that organizations consider as part of the implementation process.

While most of the inquiries have been fact- and circumstance-specific, there are a few general trends that underlie several of the inquires that are useful to consider as you prepare to adopt the new leases standard.
While most of the inquiries have been fact- and circumstance-specific, there are a few general trends that underlie several of the inquires that are useful to consider as you prepare to adopt the new leases standard.

First, one should consider whether a contract has been accounted for as a lease under existing accounting guidance. Addressing this question is a good starting point because most contracts that are accounted for as leases today will continue to be accounted for as leases under the new guidance.

Second, lessor accounting was not significantly changed. However, some subtle changes were made to ensure it is aligned with the control principle under the upcoming revenue recognition guidance. For example, stakeholders should consider whether the new standards may change their current accounting for lease receivables.

Last, because lessees will now be recognizing operating leases on the balance sheet, those lessees should spend additional time understanding the guidance for lease and nonlease components and the discount rate.

In addition to responding to inquiries, the FASB staff has been assessing whether any formal standard-setting action (such as clarifying the guidance in the new standard) should be recommended to the Board. To date, we have not identified any areas in which we believe that formal standard setting is necessary.
The Board is planning to publicly discuss the leases implementation process, providing an update on the key issues and next steps, before the end of this year.

We will continue to work with stakeholders and monitor implementation. However, we believe that establishing a standing transition resource group is not necessary at this time. The Board is planning to publicly discuss the leases implementation process, providing an update on the key issues and next steps, before the end of this year.

A quick reminder: for public companies, the standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. For all other organizations, the standard is effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. Early application is permitted for all organizations.

We encourage stakeholders to submit implementation questions to FASB staff through the FASB’s Technical Inquiry service. In addition to addressing individual concerns, this service helps us identify reoccurring questions, themes, and issues that may need to be addressed more broadly. The service also helps our stakeholders obtain input on applying our standards to their specific circumstances.
Organizations should continue to carefully evaluate the effects of the new leases standard to achieve a successful implementation.

The FASB staff produced a new video resource, The Display Approach: A Quick Example, that will help organizations understand how to apply the display approach in recognizing operating leases on the balance sheet. This approach was specifically designed to allow preparers to leverage existing systems and processes.

Organizations should continue to carefully evaluate the effects of the new leases standard to achieve a successful implementation. Through our outreach and responses to technical inquiries, we continue to stand ready to address your questions and concerns about implementing the leases standard.