FASB Proposes Clarifications to Land Easements Application Guidance in New Leases Standard
Norwalk, CT, September 25, 2017—The Financial Accounting Standards Board (FASB) today issued a proposed Accounting Standards Update (ASU) intended to clarify the application of the new leases guidance to land easements. Stakeholders are asked to review and provide comments on the proposed ASU by October 25, 2017.
“Since issuing our new Leases standard in 2016, the FASB has heard concerns from stakeholders about the application, cost, and complexity of the new leases guidance to land easements,” stated FASB Chairman Russell G. Golden. “We encourage stakeholders to review the proposed ASU and share their views on whether they think its provisions would address the issues raised.”
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 (for example, 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.
The proposed ASU is available for review at www.fasb.org.
About the Financial Accounting Standards Board
Established in 1973, the FASB is the independent, private-sector, not-for-profit organization based in Norwalk, Connecticut, that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP). The FASB is recognized by the Securities and Exchange Commission as the designated accounting standard setter for public companies. FASB standards are recognized as authoritative by many other organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA). The FASB develops and issues financial accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information to investors and others who use financial reports. The Financial Accounting Foundation (FAF) supports and oversees the FASB. For more information, visit www.fasb.org.