Article

FASB Fixes Lease Accounting Issues

April 3, 2019

On March 5, the Financial Accounting Standards Board (“FASB”) issued a new standard to clarify for lessors and lessees an exemption from an interim disclosure provision related to the board’s lease standard. Accounting Standards Update (“ASU”) No. 2019-01, Leases (Topic 842): Codification Improvements, brings into line the new guidance with current guidance concerning fair value of the underlying asset by lessors not considered manufacturers or dealers under Topic 842, Leases.

The fair value of the underlying asset at the beginning of the lease agreement is its cost, and it should reflect any applicable volume or trade discounts. If there is a significant gap between when the underlying asset is acquired and when the lease starts, however, the “fair value” definition under Topic 820, Fair Value Measurement, must be applied.

Additionally, ASU No. 2019-01 requires lessors in the scope of Topic 942, Financial Services — Depository and Lending, to disclose principal payments received under leases within their investing activities. The new standard also exempts lessees and lessors from providing certain interim disclosures in the fiscal year wherein an entity adopts the FASB’s lease standard.

ASU No. 2019-01 is effective for public business entities, nonprofits with conduit debt and some employee benefit plans for fiscal years, and interim periods within such years, starting after December 15, 2019.  All other entities must apply the standard to fiscal years starting after December 15, 2019, and interim periods within those years starting after December 15, 2019. Entities can adopt the standard early.