The Financial Accounting Standards Board (FASB) recently issued an Accounting Standards Update (ASU) to clarify implementation guidance and disclosure requirements in leases standard. The update addresses two lessor implementation issues and designates lessees and lessors exempt from a specific interim disclosure requirement associated with adopting the new leases standard.
In 2016, FASB released updated guidance for valuing and reporting leases, which is scheduled to be implemented within the next 12-24 months. The previous accounting guidance provided an exception to fair value measurement in which companies that are not manufacturers or dealers were permitted to determine the fair value of leased property as the underlying asset’s cost, reflective of any volume or trade discounts. Originally, FASB did not carry this exception forward to the new accounting guidance, but this ASU restores this exception. If there has been a significant lapse of time between acquisition and lease commencement, however, the definition of “fair value” as defined in Topic 820, should be applied.
Currently, lessors must present all “principal payments received under leases” within investing activities. This requirement follows existing guidance, as set forth in other parts of the FASB codification, but has led to confusion for organizations which provided depository and lending services. The update clarifies that organizations which currently follow the guidance under Topic 942 (Financial Services ‑ Depository and Lending) should continue to do so when implementing the new lease standards.
Finally, the new ASU addresses questions on whether interim period disclosures are subject to the same requirements as those for annual periods. Now, exceptions for interim period presentations include specific disclosures for the effect of the change in accounting principle on annual periods including current and prior annual periods retrospectively adjusted in relation to (1) income from continuing operations, (2) net income, (3) any other affected financial statement line item, and (4) any affected per-share amounts.
FASB Chairman Russell G. Golden hopes the new changes will ensure a smoother transition to the Leasing Standard with minimal impact on the quality of information that goes to investors and other financial statement users.
If you are a public business entity, the effective date for these amendments is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the effective date is for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The early bird gets the worm, as they say; making the appropriate preparations now will be critical to your overall success. If you have any questions about the new update, the professionals in our office are ready and able to help! Give us a call today.