Market Overview

FASB Proposes Narrow-Scope Improvements to Accounting for Lessors


The Financial Accounting Standards Board (FASB)
today issued a
that would reduce costs and ease implementation of the
Leases standard for financial statement preparers. The proposal would
also clarify a specific requirement in the standard related to lessor
accounting. Stakeholders are encouraged to review and provide comment on
the proposal by September 12, 2018.

In 2016 the FASB issued Accounting
Standards Update (ASU) No. 2016-02, Leases (Topic 842)
that establishes the principles to report transparent and economically
neutral information about the assets and liabilities that arise from
leases. Since that time the FASB has been assisting stakeholders with
implementation questions and issues as organizations prepare to adopt
the new lease requirements.

"Through our implementation process on the Leases standard, stakeholders
informed us that lessors face certain issues in accounting for sales and
other similar taxes, certain lessor costs, and certain requirements
related to variable payments in contracts," said Russell G. Golden, FASB
chairman. "This proposed accounting standard provides financial
statement preparers relief and clarity in these areas and should help
them implement the Leases standard."

Specifically, this proposed ASU addresses the following issues facing
lessors when applying the Leases standard:

  • Sales taxes and other similar taxes collected from lessees. The
    guidance would permit lessors, as an accounting policy election, to
    not evaluate whether these taxes are costs of the lessor or costs of
    the lessee. Instead, the lessor would account for them as costs of the
    lessee and exclude the amounts from lease revenue and the associated
  • Certain lessor costs paid directly by lessees. The guidance
    requires lessors to exclude those costs from variable payments, and,
    therefore, from variable (lease) revenue and the associated expense
    when the amount of those costs is not readily determinable by the
  • Recognition of variable payments for contracts with lease and
    nonlease components.
    The guidance requires lessors to allocate
    (rather than recognize as currently required in the new Leases
    standard) certain variable payments to the lease and nonlease
    components when the changes in facts and circumstances on which the
    variable payment is based occur. After the allocation, the amount of
    variable payments allocated to the lease component would be recognized
    in accordance with the new Leases standard, while the amount allocated
    to nonlease components would be recognized in accordance with other
    accounting guidance (such as revenue from contracts with customers).

More information about the
proposed ASU
can be found at

About the Financial Accounting Standards Board

Established in 1973, the FASB is the independent, private-sector
organization, based in Norwalk, Connecticut, that establishes financial
accounting and reporting standards for public and private companies and
not-for-profit organizations that follow Generally Accepted Accounting
Principles (GAAP). The FASB is recognized by the Securities and Exchange
Commission as the designated accounting standard setter for public
companies. FASB standards are recognized as authoritative by many other
organizations, including state Boards of Accountancy and the American
Institute of CPAs (AICPA). The FASB develops and issues financial
accounting standards through a transparent and inclusive process
intended to promote financial reporting that provides useful information
to investors and others who use financial reports. The Financial
Accounting Foundation (FAF) supports and oversees the FASB. For more
information, visit

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