FASB Clarifies Lease Implementation Guidance for Lessors

The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) 2019-01, Leases (Topic 842): Codification Improvements. ASU 2019-01 provides lease implementation guidance for lessors on two issues and clarifies that lessees and lessors are exempt from a certain interim disclosure requirement associated with adopting the new FASB leases standard, Topic 842, Leases.

Fair Value Guidance for Certain Lessors

The new ASU aligns the Topic 842 guidance for fair value of an underlying asset by lessors that are not manufacturers or dealers with that of existing guidance.  As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in Topic 820, Fair Value Measurement) should be applied.

Sales Type and Direct Financing Leases

The ASU also requires lessors within the scope of Topic 942, Financial Services—Depository and Lending, to present all “principal payments received under leases” within investing activities on the cash flow statement.

Transition Disclosures

Finally, the ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard.

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CCH ARM Editorial

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