FASB Approves Targeted Improvements to Lease Accounting Standards

In an effort to make implementation easier and reduce costs for entities FASB issued a new lease accounting standard, Accounting Standards Update (ASU) No. 2018-11, Leases (Topic 842): Targeted Improvements.

The ASU provides:

  • An option to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in its financial statements.
  • A practical expedient permitting lessors to not separate nonlease components from the lease component if certain conditions are met.

FASB Chairman, Russell G. Golden stated, 

“The targeted improvements in the ASU address areas our stakeholders identified as sources of unnecessary cost or complexity in the leases standard. They represent the FASB’s commitment to proactively address implementation issues raised by our stakeholders to ensure a successful transition to the new standard without compromising the quality of information provided to investors.”

For entities that early adopted ASC 842, the practical expedient to not separate lease and nonlease components may be elected either in the first period following the issuance of the update or on the original effective date of ASC 842. 

The practical expedient may be applied either retrospectively or prospectively. The new leases standard is effective for public entities for fiscal years beginning after December 15, 2018, and interim periods within those years. 

For all other entities, they are required to adopt the new lease standard in fiscal years beginning after December 15, 2019, and interim periods in fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities.

Click here for more information and to download the full text of the ASU.