FASB’s Accounting Standards Update (ASU) 2018-11 offers relief cost savings for entities adopting the new lease standard ASC 842.
The update offers companies practical expedients in applying the new lease standard. A few key highlights of the update include:
- Transition Relief – a new (and optional) transition method allows entities to initially apply the new lease guidance at the adoption date, and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption, while continuing to present the comparative periods.
K·Coe Isom’s accounting experts explain: many companies will take advantage of this new transition method considering the cost savings it offers. However, even with this relief, companies shouldn’t delay their implementation projects, given the amount of effort still required.
- Separating Components of a Contract by Lessors – the amendment provides lessors with a practical expedient to not require the separation of lease and non-lease components of a contract.
K·Coe Isom’s accounting experts explain: the lessor practical expedient should be a welcome change for many entities as it basically enables them to account for their transactions under the new lease standard in a manner similar to how they have accounted for them in the past.
Of course, this is a very high-level summary of the latest update of the lease standard, and should be reviewed in full detail for its application to each lessor/lessee. There are many other considerations that are important to understand (and evaluate whether a lessor/lessee qualifies for) the practical expedient options.
K·Coe Isom created a webinar to address the new lease standard and the FAQs we’ve received.
- Register here for a recording of our free Lease Standard Webinar.
Feel free to contact Kyle Rusten (Kyle.Rusten@kcoe.com) or Dawn Buchanan (Dawn.Buchanan@kcoe.com) with questions on applicability.