FASB finalizes lessor ASC 842 amendment

Lessors will classify leases with variable payments that do not depend on an index or rate as operating leases if a different classification would result in a commencement date selling loss (Day 1 loss). 

Applicability

• All companies and not-for-profit entities

Relevant dates

• July 19, 2021 – FASB issues final ASU
• April 14, 2021 – FASB reaches final decision on lessor leases with variable payments that would trigger a Day 1 loss if classified as sales-type or direct financing – Tentative Decision
• February 10, 2021 – FASB redeliberates ‘targeted improvements’ proposals, leaving only the issue of lessor leases with variable payments on its technical agenda and removing the other two issues – Tentative Decision   
• December 4, 2020 – Comments deadline on proposed ASU
• October 20, 2020 – Proposed ASU with three ‘targeted improvements’ to ASC 842 issued
• July 29, 2020 – Leasing and agenda-setting decisions reached; ‘targeted improvements’ project added to the technical agenda

Key impacts

Lessors will classify a lease with variable payments that do not depend on an index or rate as an operating lease if:

• the lease would have been classified as a sales-type lease or a direct financing lease under the pre-ASU lease classification criteria; and
• sales-type or direct financing lease classification would result in a Day 1 loss.  

Report contents

• Applicability
• Fast facts, impacts, actions
• Background
• Final amendment
• Effective dates and transition

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