FASB Simplifies Adoption of New Leases Standard for Some Land Easements

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Jan 25, 2018

On January 25, 2018, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) that clarifies the application of the new leases guidance to land easements and eases adoption efforts for some land easements.

“The new ASU reduces the cost of adopting the new leases standard for certain land easements,” noted FASB Chairman Russell G. Golden. “Additionally, it helps ensure that companies can make a successful transition to the standard without compromising the quality of information provided to investors about these transactions.”

Land easements (also commonly referred to as rights of way) represent the right to use, access, or cross another entity’s land for a specified purpose.  Land easements are used by utility and telecommunications companies, for example, when they need to take a small strip of land—or easement—to bury wires. Not all companies have historically accounted for them as leases.

The land easements ASU:

  • Provides an optional transition practical expedient that, if elected, would not require an organization to reconsider their accounting for existing land easements that are not currently accounted for under the old leases standard
  • Clarifies that new or modified land easements should be evaluated under the new leases standard, once an entity has adopted the new standard.  

The amendments in this Update affect the amendments in ASU No. 2016-02, Leases (Topic 842), which are not yet effective, but may be early adopted, and Example 10 of Subtopic 350-30. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Update 2016-02. An entity that early adopted Topic 842 should apply the amendments in this Update upon issuance.

Review the press release and the ASU on the FASB's website.

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