At its March 7, 2018, meeting, the FASB discussed feedback on one of the two amendments in its proposed Accounting Standards Update (ASU)¹ on targeted improvements to ASU 2016-02.² The meeting specifically addressed the proposed additional optional transition method in the new leasing standard. The proposed ASU was issued on January 5, 2018.

Background and Decisions

At its November 29, 2017, meeting, the FASB tentatively decided to amend ASU 2016-02 in an attempt to provide relief from the costs of implementing the standard so that entities may elect not to restate their comparative periods in transition. Effectively, the amendment would allow entities to change their date of initial application to the beginning of the period of adoption (e.g., January 1, 2019, for a calendar-year-end company). See Deloitte’s December 5, 2017, Heads Up for key provisions of the proposed ASU.

At this week’s meeting, the Board reaffirmed the proposed amendments for transition. In addition, the Board discussed feedback regarding the ASC 840 comparative-period disclosure requirements when an entity elects this proposed transition method. Specifically, the discussion focused on the requirement in ASC 840-20-50-2(a),³ commonly referred to as the “five-year table,” and the requirement that the five-year table information only be presented “as of the date of the latest balance sheet presented,” which would not require presentation of the December 31, 2018, information with December 31, 2019, financial statements. The FASB voted to clarify language in the proposed transition method in the ASU, once finalized, to ensure that if the optional transitional method is elected, all required disclosures under ASC 840, including the five-year table, must be included in the comparative period.

Next Steps

The proposed ASU also includes an amendment that would allow a lessor to apply a practical expedient that, when certain conditions are met, would not separate or allocate consideration to a nonlease component. The staff plans to share feedback on that proposal at the March 28, 2018, Board meeting for discussion and then, pending finalization, the staff will ask the FASB for permission to proceed with a final ASU, including both amendments to ASC 842.

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1 FASB Proposed Accounting Standards Update, Leases (Topic 842): Targeted Improvements.

2 FASB Accounting Standards Update No. 2016-02, Leases.

3 ASC 840-20-50-2 states, in part: “For operating leases having initial or remaining noncancelable lease terms in excess of one year, the lessee shall disclose . . . [f]uture minimum rental payments required as of the date of the latest balance sheet presented, in the aggregate and for each of the five succeeding fiscal years.”