16.11 Transition Disclosures
ASC 842-10
65-1 The
following represents the transition and effective
date information related to Accounting Standards
Update . . . No. 2016-02, Leases (Topic
842) . . .
Disclosure
i. An entity shall provide the transition
disclosures required by Topic 250 on accounting
changes and error corrections, except for the
requirements in paragraph 250-10-50-1(b)(2) and
paragraph 250-10-50-3. An entity that elects the
transition method in (c)(2) shall provide the
transition disclosures in paragraph
250-10-50-1(b)(3) as of the beginning of the
period of adoption rather than at the beginning of
the earliest period presented.
Note: See paragraph
250-10-S99-6 on disclosure of the impact that
recently issued accounting standards will have on
the financial statements of a registrant.
j. If an entity uses one or more of the
practical expedients in (f), (g), and (gg), it shall disclose that
fact.
jj. An entity electing the transition method
in (c)(2) shall provide the required Topic 840
disclosures for all periods that continue to be in
accordance with Topic 840. . . .
An entity adopting ASC 842
should provide the transition disclosures required by ASC 250, excluding the disclosure in
ASC 250-10-50-1(b)(2) about the effect of the change on income from continuing operations,
net income, any other financial statement line item, and any per-share affected amounts for
any of the periods. Moreover, entities do not need to provide the corresponding interim
disclosures required by ASC 250-10-50-3. The disclosure required by ASC 250-10-50-1(b)(3)
regarding “[t]he cumulative effect of the change on retained earnings or other components of
equity or net assets in the statement of financial position” must be provided as of the date
of initial application of ASC 842.
An entity adopting ASC 842
must also disclose the transition practical
expedients used, as applicable.
An entity electing the
Comparatives Under 840 Option must provide the ASC
840 disclosures for all periods that are presented
in accordance with ASC 840 (see Section
16.1.1).
Connecting the Dots
ASC 840 Disclosures Required in the Comparative Periods
The Board revised the language
in ASU 2018-11 to
clarify that an entity must provide the ASC 840 disclosures for all periods that are
presented in accordance with ASC 840. As part of this requirement, the entity must apply
the guidance in ASC 840-20-50-2(a) (commonly referred to as the “lease commitments
table”) as of the latest balance sheet presented. Further, paragraph BC14 of ASU 2018-11
indicates that the latest balance sheet date presented should be the latest balance
sheet date presented under ASC 840 (e.g., December 31, 2018, for a PBE with a calendar
year-end). Therefore, for a PBE with a calendar year-end, the ASC 840-20-50-2(a) lease
commitments table as of December 31, 2018, will be presented in the annual financial
statements for the year ended December 31, 2019. Also, paragraph BC14 of ASU 2018-11
indicates that the ASU does not change, or create additional, “interim disclosure
requirements that entities previously were not required to provide.” In discussions with
the FASB staff regarding what disclosures are required in interim periods during the
year of adoption, the staff clarified that it would expect an entity to disclose the
lease commitments table as of December 31, 2018 (on the basis of the fact pattern
described above) in each interim period in the year of adoption. For example, an entity
would present the lease commitments table for the year ended December 31, 2018, in the
first-quarter 2019 Form 10-Q. The table would not be updated to reflect a run-off of
three months of activity that occurred during the first quarter of 2019, nor would the
entity need to present a lease commitments table as of March 31, 2018. Rather, the table
presented in the December 31, 2018, Form 10-K would be carried forward to the
first-quarter 2019 Form 10-Q.
While ASC 842 may not require
entities to provide certain of the above prescribed disclosures in interim financial
statements, SEC rules and staff interpretations require SEC registrants to provide both
annual and interim disclosures in the first interim period after the adoption of a new
accounting standard and in each subsequent quarter in the year of adoption.
Specifically, Section 1500
of the SEC Division of Corporation Finance Financial Reporting Manual (FRM) states:
[Regulation] S-X Article 10 requires disclosures about material
matters that were not disclosed in the most recent annual financial statements.
Accordingly, when a registrant adopts a new accounting standard in an interim
period, the registrant is expected to provide both the annual and the interim period
financial statement disclosures prescribed by the new accounting standard, to the
extent not duplicative. These disclosures should be included in each quarterly
report in the year of adoption.
See Chapter 18 for
further discussion of SEC reporting considerations
for SEC registrants, including SAB Topic 11.M
disclosure requirements.