FASB clarified implementation guidance and disclosure requirements in the leases standard

On 5 March 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-01 that addresses three issues associated with adopting the new leases standard.

ASU 2019-01, Leases (Topic 842): Codification Improvements, amends certain aspects of the new leasing standard (ASU 2016-02, Leases (Topic 842)) which was issued in February 2016.

ASU 2019-01 addresses the following three issues:

  1. Determining the fair value of the underlying asset by lessors that are not manufacturers or dealers;
  2. Presentation on the statement of cash flows for sales-type and direct financing leases by lessors within the scope of ASC 942; and
  3. Clarification of interim disclosure requirements during transition.

1. Determining the Fair Value of the Underlying Asset by Lessors That Are Not Manufacturers or Dealers

These amendments affect all lessors that are not manufacturers or dealers (generally financial institutions and captive finance companies – qualifying lessors). The ASU provides guidance for determining fair value and its application to lease classification and measurement. Specifically, for qualifying lessors, the fair value of the underlying asset at lease commencement would be its cost, including any acquisition costs, such as sales taxes and delivery charges. However, if a significant lapse of time occurs between the acquisition of the underlying asset and lease commencement, lessors would be required to determine fair value in accordance with ASC 820.

2. Presentation on the Statement of Cash Flows for Sales-Type and Direct Financing Leases by Lessors Within the Scope of ASC 942

This amendment affects all lessors that are depository and lending entities within the scope of Topic 942.  The ASU requires them to classify principal payments received from sales-type and direct financing leases within “investing activities.” That is, such entities would not follow the guidance in ASC 842-30-45-5, which requires lessors to classify cash receipts from leases within “operating activities.”

Effective Date and Transition

For the two issues above, the ASU is effective:

  • For public business entities, certain not-for-profit entities, and certain employee benefit plans, for fiscal years beginning after 15 December 2019, and interim periods within those fiscal years.
  • For all other entities, for fiscal years beginning after 15 December 2019, and interim periods within fiscal years beginning after 15 December 2020.

Early adoption is permitted for all entities. If an entity early adopts, the ASU will be applied as of the date the entity first applies ASU 2016-02 (i.e., when it adopts the new leasing standard in accordance with ASC 842-10-65-1(c)).

3. Clarification of Interim Disclosure Requirements During Transition

The ASU also includes a Codification improvement to the transition guidance in ASC 842-10-65-1(i) to clarify that entities adopting ASC 842 do not need to provide the interim-period disclosures required by ASC 250-10-50-3, which states:

In the fiscal year in which a new accounting principle is adopted, financial information reported for interim periods after the date of adoption shall disclose the effect of the change on income from continuing operations, net income (or other appropriate captions of changes in the applicable net assets or performance indicator), and related per-share amounts, if applicable, for those post-change interim periods.

Accordingly, interim disclosures about the effect on income in the year of adoption of ASC 842 are excluded from the required disclosures in transition, in a manner similar to the annual disclosures in ASC 250-10-50-1(b)(2).

These amendments affect all entities that are lessees or lessors.


The article is part of dReport – March 2019, Accounting news.

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