By: George M. Wilson, SEC Institute

As we posted back in early December the FASB, after significant constituent feedback, developed plans to make changes to their new lease accounting standard to ease the transition and reduce the impact of the new standard, particularly for lessors.

The board issued the planned exposure draft on January 5, 2018. You can read about the exposure draft in this press release and find the actual exposure draft here. The main provisions of the exposure draft are:
Adding a transition option that would permit application of the new standard at its adoption date instead of at the earliest comparative period presented in its financial statements.
Adding an optional practical expedient, by class of asset, for lessors to not separate nonlease components from the associated lease components if certain conditions are met. Election of the practical expedient would require disclosures.

The comment period for the proposed ASU ends on February 5, 2018.

Land Easements Final ASU Still in Process

The FASB also decided back in December to proceed with the issuance of a final ASU that provides an optional transition practical expedient for land easements that are not currently accounted for using existing lease guidance under ASC 840. Companies would not have to reconsider accounting for these land easements. This new standard will also clarify that after its effective date companies would use the new standard to evaluate new and modified land easements. This Final ASU is still in process with an estimated completion date in the first quarter of 2018.

As always, your thoughts and comments are welcome!

By: George M. Wilson, SEC Institute

On November 29, 2017, after input from many constituents, an exposure draft and extensive consideration, the FASB decided to make several changes to its new lease accounting standard (ASC 842) to provide transition relief and make certain other changes. As you can read in this Media Advisory the Board announced their conclusions in advance of posting details on their website.

According to the Media Advisory, the FASB decided to issue a proposed ASU to make changes to ASC 842, including:

            Comparative Financial Statements in Transition

The proposal will include adding a transition option to allow companies to not provide comparative period financial statements with adoption. Instead, the transition provisions of the leases standard would be applied at its effective date, that is the most recent period presented only.

            Lessor accounting for separation of non-lease components from lease components

The proposal will also include adding a practical expedient that would permit lessors to not separate non-lease components from the related lease components if certain conditions are met. This practical expedient would be elected by a class of underlying assets, and if elected, would require incremental disclosures.

            Land Easements

The FASB decided to proceed with the issuance of a final ASU that provides an optional transition practical expedient for land easements that are not currently accounted for using existing lease guidance under ASC 840. Companies would not have to reconsider accounting for these land easements. This new standard will also clarify that after its effective date companies would use the new standard to evaluate new and modified land easements.

The FASB plans to make the details of the meeting available on their website within a week, so stay tuned!

As always, your thoughts and comments are welcome!

The FASB’s new lease accounting standard presents complex accounting, internal control, systems and implementation challenges. Attend SECI’s live interactive workshop, Implementing the FASB’s New Leases Accounting Standard Workshop being held September 8^th & November 3^rd in New York City and October 16^th in San Francisco. Attendees will learn the conceptual underpinnings, overall structure and details of this new standard as it applies to both lessees and lessors. Implementation considerations, system issues and related topics will be discussed in detail and concepts will be reinforced by use of examples and case studies.

http://www.pli.edu/Content/Implementing_the_FASB_s_New_Lease_Accounting/_/N-1z10dmcZ4k?ID=309314&t=WLH7_DPAD

FASB lease guidance is effective in 2019 but early adoption is permitted. Are there any companies considering early adoption?

Here at SECI, the only early adopter that we know about so far is Microsoft.  They plan to early adopt on July 1, 2017 as their fiscal year ends June 30, 2017.

This is from their March 31, 2017 quarterly report on Form 10-Q:

Leases

In February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases under current U.S. GAAP. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We will be required to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented using a modified retrospective approach, with certain practical expedients available.

The standard will be effective for us beginning July 1, 2019, with early adoption permitted. We plan to adopt the standard effective July 1, 2017 concurrent with our adoption of the new standard related to revenue recognition. We intend to elect the available practical expedients on adoption. While our ability to early adopt depends on system readiness, including software procured from third-party providers, and completing our analysis of information necessary to restate prior period consolidated financial statements, we remain on schedule and have implemented key system functionality to enable the preparation of restated financial information.

We anticipate this standard will have a material impact on our consolidated balance sheets. However, we do not expect adoption will have a material impact on our consolidated income statements. While we are continuing to assess potential impacts of the standard, we currently expect the most significant impact will be the recognition of ROU assets and lease liabilities for operating leases. We expect our accounting for capital leases to remain substantially unchanged.

We are nearing completion of retrospectively adjusting financial information for fiscal year 2016 and are progressing as planned for fiscal year 2017. We expect adoption of the standard will result in the recognition of additional ROU assets and lease liabilities for operating leases of approximately $5 billion as of June 30, 2016. ROU assets and lease liabilities for operating leases are expected to increase in fiscal year 2017 primarily due to the acquisition of LinkedIn Corporation (“LinkedIn”) and additional datacenter leases.

SECI is holding a live interactive workshop on Lease Accounting in New York and San Francisco.  Join us to hear more about how to implement the new standard!

Implementing the FASB’s New Lease Accounting Standard Workshop being held September 8^th & November 3^rd in New York City and October 16^th in San Francisco. Attendees will learn the conceptual underpinnings, overall structure and details of this new standard as it applies to both lessees and lessors. Implementation considerations, system issues and related topics will be discussed in detail and concepts will be reinforced by use of examples and case studies.

http://www.pli.edu/Content/Implementing_the_FASB_s_New_Lease_Accounting/_/N-1z10dmcZ4k?ID=309314&t=WLH7_DPAD