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FASB issues update to leases guidance

FASB on Monday released an amendment to an Accounting Standards Update designed to improve leases guidance on related party arrangements between entities under common control.

The amended ASU No. 2016-02, Leases (Topic 842) was released after a post-implementation review of the ASU revealed concerns from stakeholders related to successfully applying the topic. Last November, FASB issued an exposure draft of the amended ASU and welcomed public comment through mid-January.

The two issues addressed in the ASU are effective for fiscal years beginning after Dec. 15, 2023, including interim periods within those fiscal years. Early adoption is permitted.

The issues addressed are:

  • terms and conditions to be considered; and
  • accounting for leasehold improvements.

According to a FASB news release, the ASU provides private companies and not-for-profit organizations that are not conduit bond obligors with a practical expedient to use the written terms and conditions of a common control arrangement to determine whether a lease exists and, if so, the classification of and accounting for that lease.

The ASU also requires all entities (including public companies) to amortize leasehold improvements associated with common control leases over the useful life to the common control group.

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