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On February 25, 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02
Leases (Topic 842). The ASU seeks to enhance transparency and comparability among entities by requiring the recognition of lease assets and liabilities and disclosure of key information regarding leasing arrangements.
In connection with the FASB’s transition support efforts, on January 25, 2018, it issued ASU No. 2018-01 Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842. The ASU introduces an optional transition practical expedient that provides entities with relief from the Topic 842 requirement to evaluate existing or expired land easements that were not previously accounted for as leases under the current leases guidance in Topic 840. If the practical expedient is not elected, the entity will be required to evaluate all existing or expired land easements to determine whether they meet the definition of a lease under Topic 842. Alternatively, if the expedient is elected, the entity is only required to evaluate new or modified land easements under Topic 842 prospectively (i.e., beginning at the date of initial adoption of Topic 842).
The lease project commenced as a joint project with the International Accounting Standards Board (IASB). Therefore, many of the requirements in Topic 842 are consistent with the requirements in IFRS 16
Leases as issued by the IASB in January 2016. However, there are some key differences, particularly related to certain aspects of the lessee accounting model, between the new leases standard under US GAAP and IFRS.
The main changes to US GAAP are as follows:
The amendments under both ASU No. 2016-02 and 2018-01 are effective for fiscal years beginning after December 15, 2018, including interim periods therein, for the following:
For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early application is permitted for all entities. If the amendments in ASU No. 2016-02 were early adopted, the amendments in ASU No. 2018-01 should be applied upon their issuance.
At transition, Topic 842 requires leases to be recognized and measured at the beginning of the earliest comparative period presented using a modified retrospective method. The modified retrospective method offers a number of optional practical expedients that allow an entity to continue to follow the previous GAAP for leases that commenced before the effective date of Topic 842, with the following exceptions:
To access the full script of ASU No. 2016-02, click
To access the full script of ASU No. 2018-01, click here.
For more information on the financial reporting library, contact a local
MNP Assurance Professional, or
Jody MacKenzie, Director, Assurance Professional Standards.
This communication contains a general overview of the topic and is current as of February 5, 2018. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified professional, who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no responsibility or liability for any loss related to any person's use of or reliance upon this material. © MNP LLP 2018. All rights reserved.
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