3 Targeted Lease Accounting Changes

3 Targeted Lease Accounting Changes

FASB issued a proposal to improve 3 targeted areas of its lease accounting guidance, brought into the board’s visibility by public company stakeholders, and which, do not presumably impact the ongoing practices. The proposed amendments represent FASB’s commitment for timely action with regard to its post-implementation review process of major standards.

The board considers addressing the post implementation review process challenges as a priority under Standard Setters Focus on Costs vs Benefits, “Big Three” Projects. These proposed amendments comprise the following chief guidelines:

1. The lease classification requirements where payments are predominantly variable, will stand amended for lessors. The lessors would require to classify and account for operating leases, where, the lessor risk in recognizing losses with regard to sales-type lease commencements, otherwise expected to be profitable, would stand mitigated; declares an FASB media advisory. As a result, the final outcomes in financial reporting would represent lease dynamics more effectively.

2. Lessors would have a leverage to re-measure lease liabilities against any changes such as those of reference index, a rate affecting future lease payments or/and the effective date(s) of such changes taking place. This option would be exercisable as an entity-wide accounting policy decision.

3. Requirements for lessees and lessors would change in case of a singular early lease termination within a contract, without impacting the other leases in the same. In such cases, entities would be exempt from applying modification accounting against remaining unchanged leases.

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