Tentative Board decisions are provided for those interested in following the Board’s deliberations. All of the reported decisions are tentative and may be changed at future Board meetings.

Wednesday, September 21, 2022 FASB Board Meeting

Leases (Topic 842): common control arrangements. The Board decided to add a project to its technical agenda to address the following issues related to arrangements between entities under common control:

1. Issue 1—What terms and conditions an entity should consider for:
   1. Determining whether a lease exists and, if so,
   2. The classification and accounting for that lease.
2. Issue 2—Accounting for leasehold improvements associated with leases between entities under common control.

Issue 1

For arrangements between entities under common control, the Board decided to amend Topic 842, Leases, to provide entities within the scope of paragraph 842-10-65-1(b) (that is, entities that are not public business entities, not-for-profit bond obligors, or employee benefit plans that file or furnish financial statements with or to the U.S. Securities and Exchange Commission) a practical expedient to use written terms and conditions for:

1. Determining whether a lease exists and, if so,
   
2. The classification and accounting for that lease.
   

An entity applying the practical expedient would not be required to determine whether those written terms and conditions are legally enforceable. If no written terms and conditions exist, an entity would apply Topic 842 on the basis of the legally enforceable terms of an arrangement. If an entity determines that a lease does not exist, other GAAP would apply. The Board also decided that the practical expedient could be applied on an arrangement-by-arrangement basis.

Issue 2

The Board decided to amend Topic 842 for all entities with leases between entities under common control to specify that a lessee should account for associated leasehold improvements as follows:

1. Amortize leasehold improvements over the economic life of the improvements as long as the lessee continues to use the underlying asset. If the lessor obtained the underlying asset through a lease with an entity not under common control, the economic life over which the leasehold improvements are amortized by the lessee should not exceed the lease term associated with the lessor’s lease with the entity not under common control.
2. Account for any remaining leasehold improvements as a transfer between entities under common control if, and when, the lessee ceases using the underlying asset.
   

The Board decided that a lessee should disclose information about leases in which the economic life of the leasehold improvements is longer than the lease term.

Transition—Issue 1

The Board decided that entities should apply the amendments either:

1. Prospectively to all leases that commence on or after the date of adoption of a final Update.
2. Retrospectively to the beginning of the earliest period presented in accordance with Topic 842 for all arrangements that exist at the date of adoption of a final Update. The amendments would not be applicable for arrangements no longer in place at the date of adoption of a final Update.

The Board also decided that entities may document any previously unwritten terms and conditions of an arrangement between entities under common control before they adopt the amendments.

Transition—Issue 2

The Board decided that entities should apply the amendments using one of the following:

1. Prospectively to all leases that commence on or after the date of adoption of a final Update.
2. Prospectively to all leases that exist or commence on or after the date of adoption of a final Update. The unamortized balance of existing leasehold improvements would be amortized over the remaining economic life of the leasehold improvements.
3. Retrospectively to the beginning of the earliest period presented in accordance with Topic 842 for all leases that exist at the date of adoption of a final Update. The amendments would not be applicable for arrangements no longer in place at the date of adoption of a final Update.

Effective Date

The Board decided that it would establish the effective date of final amendments after receiving comments from stakeholders on the amendments in a proposed Update. The Board also decided that the amendments should be applied for entities within the scope of paragraph 842-10-65-1(b) during interim periods within the fiscal year of adoption of a final Update. However, for entities that have not yet applied Topic 842 in interim periods, the amendments in a final Update would not be applicable during interim periods within the fiscal year of adoption of Topic 842.

Analysis of Costs and Benefits

The Board concluded that it has received sufficient information and analysis to make an informed decision on the expected costs of the proposed amendments and that the expected benefits of those amendments would justify the expected costs.

Next Steps

The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot, with a comment period of 45 days.



Financial Services—Insurance (Topic 944): Transition for Sold Contracts. The Board redeliberated the proposed Accounting Standards Update, Financial Services—Insurance (Topic 944): Transition for Sold Contracts. The proposed Update would allow an insurance entity to make an accounting policy election to exclude contracts that meet certain criteria from applying the amendments in Accounting Standards Update No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI), when they have been derecognized before the LDTI effective date.

The Board affirmed the following decisions:

1. To amend the transition guidance for Update 2018-12 to include an accounting policy election for insurance entities to not apply that guidance to contracts or legal entities sold or disposed of before the effective date.
2. To limit the accounting policy election to contracts or legal entities that are derecognized due to sale or disposal before the effective date.
3. To limit the accounting policy election to contracts in which the insurance entity does not have certain forms of significant continuing involvement.
4. To require that an entity disclose if the accounting policy election was made and to provide a qualitative description of the transactions to which the insurance entity applied the accounting policy election.

The Board decided to allow insurance entities to apply the accounting policy election on a transaction-by-transaction basis. That is, an insurance entity may elect that an accounting policy election be applied at the sale or disposal transaction level as opposed to an entity-wide election.

Transition and Effective Date

The Board affirmed that the amendments in the final Update should be adopted concurrently with the adoption of the amendments in Update 2018-12, as amended by Accounting Standards Update No. 2020-11, Financial Services—Insurance (Topic 944): Effective Date and Early Application.

Cost-Benefit Analysis

The Board concluded that it has received sufficient information and analysis to make an informed decision on the expected costs of applying the amendments in the final Update and that the expected benefits of the amendments would justify the expected costs.

Permission to Ballot and Next Steps

The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.



Revenue Recognition Post-Implementation. The Board discussed the outreach feedback from nonpublic entity stakeholders and the monitoring activities performed since the July 2021 Board meeting as part of the post-implementation review (PIR) of Topic 606, Revenue from Contracts with Customers. The Board also discussed research conducted to date on issues identified through the PIR process. The Board made no decisions and asked the staff to continue to monitor the costs and benefits of Topic 606 implementation. The staff will provide updates to the Board at future meetings.