Narrow-scope improvements to FASB leasing standard

The Financial Accounting Standards Board (FASB) is consulting on narrow-scope improvements to the new leases standard designed to reduce costs and ease implementation for financial statement preparers

The proposal would also clarify a specific requirement related to lessor accounting in the standard, which was issued in 2016.

Russell Golden, FASB chairman, said: ‘Through our implementation process on the leases standard, stakeholders informed us that lessors face certain issues in accounting for sales and other similar taxes, certain lessor costs, and certain requirements related to variable payments in contracts

‘This proposed accounting standard provides financial statement preparers relief and clarity in these areas and should help them implement the leases standard.’

The proposed guidance would permit lessors, as an accounting policy election, to not evaluate whether sales taxes and other similar taxes collected from lessees are costs of the lessor or costs of the lessee. Instead, the lessor would account for them as costs of the lessee and exclude the amounts from lease revenue and the associated expense. 

The guidance requires lessors to exclude certain costs paid directly by lessees from variable payments, and, therefore, from variable (lease) revenue and the associated expense when the amount of those costs is not readily determinable by the lessor.

It also alters recognition of variable payments for contracts with lease and nonlease components. The guidance requires lessors to allocate (rather than recognise as currently required in the new leases standard) certain variable payments to the lease and nonlease components when the changes in facts and circumstances on which the variable payment is based occur.

After the allocation, the amount of variable payments allocated to the lease component would be recognised in accordance with the new leases standard, while the amount allocated to nonlease components would be recognized in accordance with other accounting guidance (such as revenue from contracts with customers).

The proposal is open for comment until 12 September.

Proposed accounting standards update—leases (topic 842): narrow-scope improvements for lessors is here

Report by Pat Sweet

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