Defining Issues | December 2018

SEC staff provides guidance on lease exchange rates

Filed under: Leases

KPMG reports on new SEC staff guidance on updating the foreign exchange rate used to remeasure an ROU asset into the lessee’s functional currency. The SEC staff has provided guidance on whether and how a lessee should update the exchange rate used to remeasure an ROU asset into the lessee’s functional currency when the lease is denominated in a currency other than the functional currency.

Applicability

Lessees that enter into leases denominated in a foreign currency that is not their functional currency.

Key impacts

Lessees may elect either of the following two approaches to updating the exchange rate used to remeasure an ROU asset into the lessee’s functional currency:

  • Approach 1. Reset the exchange rate used to remeasure the entire ROU asset when the lease is modified (and the modification is not a separate contract) or remeasured because of a change to the lease term or assessment of a lessee purchase option; leave the rate unchanged if a remeasurement occurs for other reasons
  • Approach 2. Treat any increases to the ROU asset as a new ‘layer’ of the asset, and apply an updated exchange rate only to the new layer

Report contents

  • Applicability
  • Key facts and impacts
  • FASB proposed ASU
  • SEC staff guidance on updating exchange rates

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