FASB Proposes Clarifications to Land Easements Application Guidance in New Leases Standard
Norwalk, CT, September 25, 2017—The Financial Accounting Standards Board (FASB) today issued a proposed Accounting Standards Update (ASU)
intended to clarify the application of the new leases guidance to land
easements. Stakeholders are asked to review and provide comments on the
proposed ASU by October 25, 2017.
"Since issuing our new Leases standard in 2016, the FASB has heard
concerns from stakeholders about the application, cost, and complexity
of the new leases guidance to land easements," stated FASB Chairman Russell G. Golden.
"We encourage stakeholders to review the proposed ASU and share their
views on whether they think its provisions would address the issues
raised."
Land easements (also commonly referred to as rights of way) represent
the right to use, access, or cross another entity's land for a specified
purpose. To address the diversity in practice that exists in how
organizations currently account for land easements, this proposed ASU
would clarify that land easements should be evaluated under the new
leases guidance.
However, some stakeholders have pointed out that the requirement to
evaluate all existing land easements not previously assessed under the
existing leases guidance to determine if they meet the definition of a
lease under the new leases standard would be costly and complex (for
example, because of the volume and age of those easements). They also
noted there would be limited benefit to applying this requirement, as
many of their land easements would not meet the definition of a
lease—or, even if they met that definition, many of their easements are
prepaid and, therefore, already are recognized on the balance sheet.
Consequently, the proposed ASU also would address concerns about the
costs and complexity of complying with the transition requirements of
the new leases guidance by providing an optional transition expedient
for land easements not previously assessed under the existing leases
guidance.
The proposed ASU is available for review at www.fasb.org.