FASB Releases New Proposal for ASC 842

In October of 2020, the Financial Accounting Standards Board (FASB) issued a new proposal in response to feedback from the Port- Implementation Review (PIR). The new proposal includes three main improvements put into place to resolve complex and tricky leasing standards that were previously in place. These improvements for the new leasing standard from the FASB, will impact those who adopted the ASC 842 and those who are still in the process of adopting.  The proposed updates impact the guidance in several ways as listed below.

If you need further guidance on the proposed targeted improvements to the ASC 842, we have experienced CPA’s and professionals at Cambaliza McGee LLP that can assist you. 

1. Allow Remeasure Variable Lease Payments – The first improvement made by the FASB was to allow lessees to remeasure variable lease payments through an index or rate.  An index or rate change can affect future lease payments, when changes in variable lease payments are re-measured in the lease liability.
2. Standard’s Modification Guidance Exemptions – The second improvement made by the FASB was to exempt a lessee or lessor from applying standard modification guidance, if more than one lease is terminated before the end term date.  However, other lease components of the standard modification guidance remain the same. This improvement prevents a company or organization from remeasuring the discount rate and lease variables. 
3. Classify Lease Variable Changes – The last improvement made by the FASB was to force lessors to classify leases not based on an index or rate operating expense. This is only applied to lessors who have lease payments predominantly variable.   

If you have any questions about these targeted improvements, changes to ASC 842, or other general accounting lease issues, contact our knowledgeable CPA’s at (949) 484-8288.

Author: CM Editorial