FASB Clarifies Implementation Guidance for Leases Standard
FASB issued the Accounting Standards Update (ASU) No. 2019-01 on the standard for leases (topic 842). The ASU addresses two lessor implementation issues and clarifies that lessees and lessors are exempt from a certain interim disclosure requirement associated with adopting the new leases standard.
The new ASU aligns the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842, with that of the existing guidance. Consequently, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in Topic 820, Fair Value Measurement) should be applied. This ASU also requires lessors within the scope of Topic 942 (Financial Services—Depository and Lending) to present all “principal payments received under leases” within investing activities. The new ASU clarifies areas identified by FASB's stakeholders as they prepared to implement the leases standard.
FASB had issued the ASU No. 2016-02 on Leases (Topic 842) on February 25, 2016. The aim of this standard is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing essential information about leasing transactions. However, FASB decided to issue a separate Update (ASU No. 2019-01) for the improvements related to ASU 2016-02 to increase stakeholder awareness of the amendments and to expedite the improvements. The amendments in ASU No. 2019-01 include the following items brought to the Board’s attention through its interactions with stakeholders:
- Determining the fair value of the underlying asset by lessors that are not manufacturers or dealers (Issue 1)
- Presentation on the statement of cash flows—sales-type and direct financing leases (Issue 2)
- Transition disclosures related to Topic 250, Accounting Changes and Error Corrections (Issue 3)
The amendments in ASU No. 2019-01 amend Topic 842, which has different effective dates for public business entities and entities other than public business entities. The effective date of those amendments is for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years for any of these entites: a public business entity; a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market; and an employee benefit plan that files financial statements with the U.S. SEC. 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. Early application is permitted. An entity should apply the amendments as of the date that it first applied Topic 842, using the same transition methodology in accordance with paragraph 842-10-65-1(c).
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Keywords: Americas, US, Banking, Accounting, Accounting Standards Update, Leases Standard, ASU 2019-01, ASU 2016-02, IFRS 16, FASB
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