By John Bober
Since issuing the Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) in February 2016, the Financial Accounting Standards Board (FASB) has regularly met to answer questions and address concerns over implementing parts of ASU. At a recent November FASB meeting, the Board agreed to incorporate two amendments to help ease the burden of adoption and implementation.
FASB approved two amendments, which include:
- Allowing organizations to apply transition provisions of the Leases standard at its effective date rather than providing comparative period financial statements.
- Adding a practical expedient that would permit lessors to not separate nonlease components from the related lease components, under certain conditions.
The FASB staff is currently formalizing the two changes and will expose them for comment. Interested parties will have 30 days to provide feedback.
As detailed in "Financial Watch" articles in ELFA's magazine, the Leases standard requires companies to adopt the new accounting model through a restatement of prior financial statements. For example, if a company is a public company and adopts the standard on Jan. 1, 2019, they would restate their P&L’s and cash flow statements for 2017 and 2018, and present a restated balance sheet for Dec. 31, 2018, in the 2019 annual report. With the proposed amendment, lessees will not have to restate prior periods. This does not grandfather the existing lease transactions but it will reduce the burden on preparers. The lessor changes will benefit operating lessors by simplifying the conditions when they will need to separate lease and nonlease components.
The FASB has recognized the new standard requires significant effort by lessees. To ensure adoption is streamlined and efficient, the Board has met with companies, stakeholders and preparer groups to address their concerns over the new standards and answer their questions. The two recent updates from November’s meeting are in response to this feedback. While they reduce the comparability of the basic financial statements, core information will be in the notes to financial statements and the changes will provide companies with cost and process savings when adopting the new standards.
John Bober is Managing Director and Global Technical Controller for GE Capital and is the Chair of the ELFA Financial Accounting Committee.