FASB removes lease modifications project from its agenda

The FASB’s decision to discontinue the lease modifications project follows other Board decisions to add and remove projects from its technical agenda as part of its ongoing agenda prioritization discussions.

Applicability

All companies with leases in the scope of ASC 842

Relevant dates

• October 20, 2020: The FASB issued a proposed 'targeted improvements' ASU to ASC 842, which included targeted amendments to the lease modification guidance.
• February 10, 2021: The FASB redeliberated the proposed ASU and decided not to proceed with the targeted amendments. Instead, the Board directed the FASB staff to identify broader potential improvements to the lease modification guidance.
• June 22, 2022: The FASB decided to remove the lease modifications project from its technical agenda. It will likely consider whether targeted refinements to the lease modifications model are warranted as part of its broader post-implementation review of ASC 842.

Key impacts

• On October 20, 2020, the FASB issued a proposed ‘targeted amendments’ ASU to ASC 842. One proposed amendment would have amended ASC 842 such that when a lease contract containing multiple lease components is modified to early terminate one or more, but not all, of the components, modification accounting would not apply to the remaining lease components if the economics of those remaining leases are unchanged by the termination(s).
• At its February 10, 2021 meeting, the FASB discussed feedback received on the proposed ASU and decided not to proceed with the proposed amendment. Instead, the Board asked the FASB staff to consider feedback received at the September 2020 public leases roundtable and an appropriate scope and topics for a potentially wider project to revise the ASC 842 lease modification requirements.
• At its June 22, 2022 meeting, the FASB decided to remove the lease modifications project from its technical agenda. Therefore, it does not appear that the Board will make any substantive changes to the ASC 842 lease modification model, for lessees or lessors, in the near term. However, some Board members expressed interest in revisiting certain aspects of the lease modification guidance – e.g. accounting for (1) lease termination penalties and (2) modifications that solely reduce the scope of a lease – in the future as part of the FASB’s ASC 842 post-implementation review.

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