Proposed ASU on lessor separation of lease components and a new transition method

KPMG reports on the FASB’s proposed ASU on lessor accounting for lease and non-lease components and a new transition method. The proposed amendments would provide lessors an option not to separate lease and non-lease components under certain circumstances and offer transition relief for companies that choose the proposed alternative transition method.

Applicability

Proposed ASU

• Optional transition relief – all companies within the scope of the new leases standard
• Separation of lease and non-lease components – lessors with contracts that contain lease and non-lease components (e.g. common area and other forms of maintenance services, operational services)

Relevant dates

• January 5, 2018 – FASB issued proposed ASU
• February 5, 2018 – Comments due on proposed ASU

Key impacts

This proposed ASU would:

• Permit companies to use the effective date of the new leases standard as the date of initial application. Companies that elect this option would not have to adjust their comparative period financial statements for effects of the new leases standard, or make the new required lease disclosures for periods before the effective date
• Permit lessors, as an accounting policy election by class of underlying asset, to not separate non-lease components of a contract from the lease components to which they relate, if those components meet certain criteria. The combined components would be accounted for as a single lease component

Report contents

• Defining Issues: FASB agrees to further amend the Leases standard
• Handbook: Leases