FASB ASU makes targeted improvements to ASC 842

^{Filed under: Leases}

KPMG reports on the FASB’s latest ASU that makes targeted improvements to the leases standard. The ASC 842 amendments create an additional transition method, and a lessor practical expedient to not separate lease and non-lease components if specified criteria are met.

Applicability

ASU 2018-11

• Optional transition relief – companies within the scope of the leases standard (ASC 842)
• Lessor separation of lease and non-lease components – lessors with contracts that contain lease and non-lease components

Relevant dates

• Effective date coincides with the effective date of the new leases standard for companies that have not early adopted
• For companies that have early adopted the new standard, it is effective upon issuance, but can only be adopted by companies either at (1) the beginning of the company’s first reporting period after issuance or (2) the company’s mandatory ASC 842 effective date

Key impacts

Optional transition relief

• The new transition method allows companies to use the effective date of the new leases standard as the date of initial application on transition.
• Companies that elect this transition option will:
  • not adjust their comparative period financial information for the effects of ASC 842;
  • not make the new required lease disclosures for periods before the effective date; and
  • carry forward their ASC 840 disclosures for comparative periods.

 Lessor separation of lease and non-lease components

• The practical expedient permits lessors to make an accounting policy election by class of underlying asset to not separate lease and non-lease components if specified criteria are met.