Insights

Fresh thinking and actionable insights that address critical issues your organization faces.

Learn more

Resources

Services

KPMG's multi-disciplinary approach and deep, practical industry knowledge help clients meet challenges and respond to opportunities.

Services to meet your business goals

Technology Alliances

KPMG has market-leading alliances with many of the world's leading software and services vendors.

View all Alliances

Industries

Helping clients meet their business challenges begins with an in-depth understanding of the industries in which they work. That’s why KPMG LLP established its industry-driven structure. In fact, KPMG LLP was the first of the Big Four firms to organize itself along the same industry lines as clients.

How We Work

We bring together passionate problem-solvers, innovative technologies, and full-service capabilities to create opportunity with every insight.

Learn more

Careers & Culture

What is culture? Culture is how we do things around here. It is the combination of a predominant mindset, actions (both big and small) that we all commit to every day, and the underlying processes, programs and systems supporting how work gets done.

Learn more
Relevant Results
Sorry, there are no results matching your search.
Autocomplete suggestions are available. Use up and down arrows to review and enter to select.
See more results

FASB issues final ASU on common control leases

Defining Issues | March 2023

The final ASU changes ASC 842 for common control lease arrangements and related leasehold improvements.

Download PDF
Share

Private entities are permitted to use any written terms and conditions between the parties – without regard to their legal enforceability – to identify, classify and account for common control leases. In addition, all lessees (public or private), in general, amortize leasehold improvements related to a common control lease over their ‘useful life’ to the common control group – regardless of the ASC 842 ‘lease term’ – as long as they continue to control the use of the underlying leased asset.

Applicability

Final ASU

  • All private entities with common control arrangements that may contain or be leases
  • All lessees (public or private) with recognized leasehold improvements related to common control leases

Relevant dates

  • September 21, 2022, the FASB:
    • added a project to its technical agenda on (1) applying ASC 842 to arrangements between entities under common control (Issue #1), and (2) accounting for leasehold improvements that relate to common control leases (Issue #2).
    • reached tentative decisions reflected in the proposed ASU.
  • November 30, 2022 – FASB issued proposed ASU.
  • January 16, 2023 – Comment deadline on proposed ASU.
  • February 15, 2023 – FASB affirmed the forthcoming amendments and directed the FASB staff to draft a final ASU.
  • March 27, 2023 – FASB issues final ASU.

Effective dates

Issue 1 (private entities only)

Issue 2 (all entities)

Annual periods – Fiscal years beginning after                                                            

December 15, 2023

December 15, 2023

Interim periods – In fiscal years beginning after 

December 15, 2023

December 15, 2023

Early adoption allowed?

Yes

Yes

 

Final amendments

Identifying terms and conditions (applicable to private entities only)

  • A private entity can elect on an arrangement-by-arrangement basis, as a practical expedient, to use the written terms and conditions of a common control arrangement to determine whether a lease exists and, if so, the classification of and accounting for that lease.
  • If there are no written terms and conditions, those entities are not permitted to use the practical expedient; instead, they evaluate whether legally enforceable terms and conditions otherwise exist and, if so, use those terms and conditions in applying ASC 842.

Leasehold improvements (applicable to all entities)

  • A lessee in a common control lease amortizes related leasehold improvements that it owns for accounting purposes over their estimated useful life to the common control group – regardless of the ASC 842 lease term – as long as the lessee controls the use of the underlying (leased) asset.
  • However, if the lessor is leasing the underlying asset through a lease with another entity that is not part of the same common control group, the leasehold improvements' amortization period is usually limited to the lease term associated with the underlying asset lease.
  • If, before the end of the improvements’ economic life, the lessee relinquishes control over the use of the underlying asset (e.g. vacates the building and returns control over its use to the lessor), it accounts for the improvements as being transferred to the lessor, derecognizing the remaining carrying amount of the improvements with a corresponding adjustment to equity (or net assets for not-for-profit entities).
  • The amendments clarify that these common control leasehold improvements are subject to the long-lived asset impairment guidance in ASC 360, with specific reference to paragraph 360-10-40-4.
  • A lessee is required to disclose information about leasehold improvements associated with common control leases being amortized over a period that exceeds the ASC 842 lease term of the related leases.

Transition

  • Under both amendments (terms and conditions; leasehold improvements), entities, in general, have the option to adopt the amendments (1) prospectively to new common control arrangements that commence and new leasehold improvements recognized after the entity’s adoption date of any final amendments; (2) prospectively to new common control arrangements (see #1) and new and existing leasehold improvements at the entity’s adoption date of any final amendments; or (3) retrospectively.
  • For the terms and conditions amendment, entities are permitted to document any previously unwritten terms and conditions of an existing arrangement between entities under common control, and therefore use the ‘terms and conditions’ practical expedient any time before the entity’s first interim or annual financial statements applying the amendments are available to be issued.
  • An entity electing the transition practical expedients in paragraphs 842-10-65-1(f) and (g) is not required to apply those transition expedients to common control arrangements for which the practical expedient for Issue 1 is being applied.

Download the document:

FASB final ASU

Download PDF

Explore more

Resource
Webcast Replay Webcast Upcoming Listen Now

Handbook: Leases

Latest edition: Our in-depth guide to ASC 842 – with Q&As, interpretive guidance and examples.

Read more

Leases

Our reporting, guidance and publications relevant to the FASB's new leases standard for lessees and lessors for all industries. KPMG specialists provide an in-depth look at ASC 842 implementation

Read more

Reference Library

In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues.

Read more

Meet our team

Image of Scott Muir
Scott Muir
Partner, Dept. of Professional Practice, KPMG US
Read bio
Image of Robin Van Voorhies
Robin Van Voorhies
Senior Director, Dept. of Professional Practice, KPMG US
Read bio
Image of Scott Muir
Scott Muir
Partner, Dept. of Professional Practice, KPMG US
Read bio
Image of Robin Van Voorhies
Robin Van Voorhies
Senior Director, Dept. of Professional Practice, KPMG US
Read bio

Accounting Research Online

Access our accounting research website for additional resources for your financial reporting needs.

Access ARO

KPMG. Make the Difference.


Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. KPMG LLP does not provide legal services.

The information contained herein is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

© 2024 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.

Thank you!

Thank you for contacting KPMG. We will respond to you as soon as possible.

Contact KPMG

Use this form to submit general inquiries to KPMG. We will respond to you as soon as possible.

By submitting, you agree that KPMG LLP may process any personal information you provide pursuant to KPMG LLP's Privacy Statement.

An error occurred. Please contact customer support.

Job seekers

Visit our careers section or search our jobs database.

Search now!

Submit RFP

Use the RFP submission form to detail the services KPMG can help assist you with.

Submit

Office locations

View locations

International hotline

You can confidentially report concerns to the KPMG International hotline

Learn more

Press contacts

Do you need to speak with our Press Office? Here's how to get in touch.

Contact

Headline