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Deloitte comments on the FASB's proposed ASU "Land Easement Practical Expedient for Transition to Topic 842"

Published on: Oct 30, 2017

Deloitte & Touche LLP comments on the FASB's Proposed ASU Land Easement Practical Expedient for Transition to Topic 842, which was issued in September 2017.

An excerpt from the comment letter is shown below:

We support the Board’s efforts to provide transition and implementation guidance with respect to applying ASU 2016-02, Leases (Topic 842) (“ASC 842”), to land easements. We believe that the proposed ASU would further the Board’s efforts by (1) providing transition relief in the form of a practical expedient to existing and expiring land easements (collectively, “existing land easements”) and (2) clarifying that land easements entered into (or existing land easements modified) on or after the effective date of the new leasing standard (collectively, “new land easements”) must be assessed under ASC 842. We believe that the transition practical expedient will provide critical relief to preparers in a number of industries who would otherwise have faced significant challenges in achieving a timely adoption of ASU 2016-02.

With respect to the accounting for new land easements, we note that the Board chose not to address the ASC 842 implementation issues associated with easements (e.g., unit of account) that were raised by constituents at the July 12, 2017, roundtable. We left the roundtable with a strong impression that the Board viewed this as a judgment area and therefore could understand diversity in practice in the identification of the unit of account. Specifically, it was noted that some entities would identify the entire land parcel subject to the easement, while others may identify smaller parcels that are physically occupied by the easement holder (e.g., the land on which the concrete footing for a windmill resides). That impression was reinforced by comments made during the FASB’s August 2, 2017, board meeting. Nevertheless, we are aware of views in practice that an entity must look to the smaller unit for the lease evaluation. If in fact the Board believes that this is an area requiring the application of judgment and one in which diversity in practice could be expected and accepted, we would encourage the Board to consider explaining this in the final ASU’s Basis for Conclusions.

Full text of the comment letter is available below.

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