On November 30, 2022, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standard Update (ASU) intended to improve accounting guidance for arrangements between entities under common control. Feedback provided during Post-Implementation Review (PIR) process included concerns expressed by private company stakeholders about applying Leases Topic 842 to related party arrangements under common control.
What are the main provisions?
- Provide a practical expedient for private companies and not-for-profit entities that are not conduit bond obligors 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 would change the accounting for leasehold improvements associated with leases between entities under common control.
- Leasehold improvements associated with those leases would be amortized by the lessee over the economic life of the leasehold improvement as long as the lessee controls the use of the underlying asset.
- Leasehold improvements would be accounted for as a transfer between entities under common control through an adjustment to equity when the lessee no longer controls the use of the underlying asset.
Who would be affected by the amendments in this proposed update?
- The practical expedient would be available to private companies and most not-for-profit entities.
- All lessees that are a party to a lease between entities under common control in which the lessee is the owner of leasehold improvements are affected.
Stakeholders are asked to review and provide comments on the proposed ASU by January 16, 2023 in one of three ways:
- Using the electronic feedback form available on the FASB website at Exposure Documents Open for Comment
- Emailing comments to [email protected], File Reference No. 2022-ED500
- Sending a letter to “Technical Director, File Reference No. 2022-ED500, FASB, 801 Main Avenue, PO Box 5116, Norwalk, CT 06856-5116.”
If you have any questions about the proposed ASU, Wolf & Company is here to help. Reach out to Nicole Florian-Theriaque at [email protected] or 413-726-6877.