FASB Issues Narrow-Scope Improvements to Accounting for Lessors
Norwalk, CT, December 10, 2018—The Financial Accounting Standards Board (FASB) today issued an Accounting Standards Update (ASU)
expected to reduce lessor's implementation and ongoing costs associated
with applying the new leases standard. The ASU also clarifies a
specific lessor accounting requirement.
In 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842),
that establishes the principles to report transparent and economically
neutral information about the assets and liabilities that arise from
leases. Since that time, the FASB has been assisting stakeholders with
implementation questions and issues as organizations prepare to adopt
the new lease requirements.
"During our implementation outreach, some stakeholders raised concerns
about issues facing lessors related to accounting for sales and other
similar taxes, certain lessor costs, and certain requirements related to
variable payments in contracts," stated FASB Chairman Russell G. Golden.
"The ASU addresses these issues to help lessors with their
implementation and ongoing application of the leases standard without
compromising information provided to users of financial statements."
Specifically, the ASU addresses the following issues facing lessors when applying the leases standard:
More information about the new ASU can be found at www.fasb.org.
- Sales taxes and other similar taxes collected from lessees.
The amendments in the ASU permit lessors, as an accounting policy
election, to not evaluate whether certain sales taxes and other similar
taxes are lessor costs or lessee costs. Instead, those lessors will
account for those costs as if they are lessee costs and exclude the
costs from being reported as lease revenue with an associated
- Certain lessor costs paid directly by lessees. The
amendments in the ASU related to certain lessor costs require lessors
to exclude from variable payments, and therefore revenue, lessor costs
paid by lessees directly to third parties. The amendments also require
lessors to account for costs excluded from the consideration of a
contract that are paid by the lessor and reimbursed by the lessee as
variable payments. A lessor will record those reimbursed costs as
- Recognition of variable payments for contracts with lease and nonlease components. The
amendments in the ASU related to recognizing variable payments for
contracts with lease and nonlease components require lessors to allocate
(rather than recognize as currently required in the new leases
standard) certain variable payments to the lease and nonlease components
when the changes in facts and circumstances on which the variable
payment is based occur. After the allocation, the amount of variable
payments allocated to the lease components will be recognized as income
in profit or loss in accordance with the new leasing guidance, while the
amount of variable payments allocated to nonlease components will be
recognized in accordance with other accounting guidance, such as revenue
from contracts with customers.