Transition Relief or Deferral of the Effective Date?
At the end of November 2017, FASB took up eight (8) issues that various stakeholders had raised in recent months. But Effective Date Deferral was not one of them. And we caution those who are still hopeful for such a deferral that if the FASB does adopt the new form of transition that it will take any chance of a deferral off the table. Transition relief or Effective Date deferral, but not both!
After review, the Board decided to NOT make amendments related to six (6) of the issues:
- Leases with 100 percent variable payments
- Short-term leases
- Foreign Currency
- Land Leases
- The definition of incremental borrowing rate
- Certain private company disclosures
However, the Board did decide to amend Topic 842, as it related to: 1) Transition, and 2) Component separation.
As a practical expedient for Lessors the Board decided to amend Topic 842 by class of asset, allowing the Lessor to not separate non-lease and lease components, if the following conditions were met: 1) revenue recognition would have been the same by component, and 2) in combination the component is an operating lease. Naturally, the disclosure of this election is required along with the affected asset classes, etc.
Meanwhile, the Board embraced a new form of transition, which could bring relief to both sides, but notably a larger benefit to Lessees then Lessors. This relief contemplates allowing application of the transition requirements at the effective date, first year beginning after December 15, 2018, and not the first comparative period presented alongside the effective date; i.e. eliminating a “look back” period. Hence, any impacts would be recognized in the period of adoption in retained earnings.
The next steps towards adoption is for the Board staff to write up the ASU (Accounting Standards Update), allow for a 30-day comment period, and confirm adoption by a written ballot vote.