On 5 January 2018, the Financial Accounting Standards Board (“FASB”) issued a proposed Accounting Standards Update (ASU) intended to reduce costs and assist in simplifying the effects to entities as it relates to the implementation of the new leases standard. Entities have until 5 February 2018 to provide comments.
The amendments in this ASU include the following considerations:
- Transition—Comparative Reporting at Adoption: The proposed amendments to the new leases standard provides entities with an additional transition method. Under the proposed transition method, entities could opt to continue to apply the legacy guidance, including its disclosure requirements, in the comparative periods presented in the year they adopt the new leases standard. Entities that elect this method would still adopt the new leases standard using the modified retrospective transition method, but would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented.
- Separating Components of a Contract: The proposed amendment to the new leases standard includes a practical expedient that would allow lessors to group components by class of underlying assets rather than bifurcate the non-lease component(s) from the related lease components, only if the following criteria are met:
- The timing and pattern of revenue recognition for the non-lease component(s) and related lease component are the same, and
- The combined single lease component would be classified as an operating lease.
If an entity elects to apply the practical expedient, they would have to disclose the class or classes of underlying assets and the nature of the non-lease component(s).
Effective date and transition requirements
The proposed amendments will have the same effective date and transition requirements as the new leases standard.
The new leases standard is effective for annual periods beginning after 15 December 2018 (i.e., 1 January 2019 for calendar-year entities), and interim periods within those years, for public business entities as well as for not-for-profit entities that have issued, or are conduit bond obligors for, securities that are traded, listed or quoted on an exchange or an over-the-counter market, and employee benefit plans that file or furnish financial statements with or to the SEC. For all other entities, the new leases standard is effective for annual periods beginning after 15 December 2019 (i.e., 1 January 2020 for calendar-year entities), and interim periods beginning after 15 December 2020 (i.e., 1 January 2021 for calendar-year entities). All entities can elect to early adopt the new leases standard.