After the FASB issues and companies adopt a major accounting standard, the FASB subjects the standard to a post-implementation review (PIR). The purpose of the PIR is to assess whether a standard is achieving its objective by providing financial statement users with relevant information in ways that justify the cost of providing it. During the PIR process, the FASB solicits and considers stakeholder input to evaluate the standards and determines whether there are areas of improvements that should be addressed.
The PIR process for both the lease accounting standard, Topic 842, and the credit loss standard, Topic 326, were on the agenda of the FASB meeting on Dec. 2. The discussion of the leases PIR focused on:
The results of the investor outreach performed by the FASB staff
Agenda requests the board may consider
Feedback from the September Leases Roundtable, for which the ELFA was a participant
Investors generally prefer the dual lease model for lessees that exists in Topic 842. This is not a universal view, as credit rating agencies, forensic accountants and some analysts have other preferences. Financial statement users also are still digesting the standard’s requirements around discount rates, the accounting for common area maintenance charges and variable rents.
Investors like the standard’s tabular disclosures as well as the detailed disclosures required by the standard. Data aggregators and how this group of users extract lease information also was mentioned during the discussions.
The feedback also indicated that the difference between U.S. GAAP and IFRS is creating noise for users of financial statements.
Regarding the subject of agenda requests, it was noted the FASB has received a limited number of these recently. These included a narrow question on sale and leaseback accounting, lessee accounting for abandoned real estate leases and the accounting for lessee ROU assets held for sale. The board indicated there may also be further consideration of acquired leases.
The topics covered during the September Leases Roundtable were then reviewed. These included the scope of the leases standard, the accounting for the allocation of lease and non-lease components, and lease modification accounting. On scope, the board focused on the additional education they have performed to help companies in the construction industry that may have thought their service contracts contained embedded leases. On modification accounting, the board discussed the model and the possible consideration of further simplifications of this model. This may take place after the exposure draft on targeted improvements is finalized.
The ELFA financial accounting committee will continue to monitor and assess developments on this matter.
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