Leases and Land Easements
Earlier this year, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-01, Leases – Land Easement Practical Expedient for Transition to Topic 842, to address the diversity in practice related to the treatment of land easements under ASU 2016-02, Leases, issued February 25, 2016. It was also issued to address concerns about the costs and complexity of evaluating whether existing or expired land easements meet the definition of a lease.
Under ASU 2016-02, entities are to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing transactions. ASU 2018-01 allows entities to elect an optional transition practical expedient to not evaluate land easements that exist or expired prior to the entities adoption of ASU 2016-02 and were not previously accounted for as leases.
The allowable practical expedients are as follows:
- An entity need not reassess whether any expired or existing contracts are or contain leases.
- An entity need not reassess the lease classification for any expired or existing leases.
- An entity need not reassess initial direct costs for any existing leases.
The practical expedient selected by the entity must be elected as a package and applied consistently to all leases (including those for which the entity is a lessee or a lessor).
In addition, an entity may elect the following practical expedients separately or in conjunction with each other and/or the practical expedients above:
- An entity may use hindsight in determining the lease term and in assessing the impairment of the entity’s right-of-use assets.
- An entity may elect to not assess whether existing or expired land easements that were not previously accounted for as leases are or contain a lease.
These elections must also be applied consistently to all to all existing and expired land easements.
The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years for any of the following:
- A public business entity;
- A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the counter market; and
- An employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission.
For all other entities, the guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.
Early adoption is permitted for all entities.
For more information and to download the full text of the ASU please visit.
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