Alert: FASB Accounting Standards Update No. 2018-20 - Leases: Narrow-Scope Improvements for Lessors

Category: US GAAP

Alert: FASB Accounting Standards Update No. 2018-20 - Leases: Narrow-Scope Improvements for Lessors

On December 10, 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-20 Leases (Topic 842): Narrow-Scope Improvements for Lessors to clarify specific accounting requirements for lessors.

The amendments resulting from this ASU are summarized as follows:

  • The ASU permits all lessors, as an accounting policy election, to:
    • Exclude sales taxes and other similar taxes collected from lessees on behalf of third parties from the consideration in the contract included in the lessor’s revenue and from variable payments not included in the consideration in the contract;
    • Account for those costs as if they are lessee costs; and
    • Provide additional disclosures.
  • The lessor costs, paid by lessees directly to a third party on behalf of the lessor, are no longer required to be included in variable payments, and therefore are not included in lessor’s revenue. This requirement is separate from costs excluded from the consideration in a contract that are paid directly to a third party by a lessor and reimbursed by the lessee. Such costs are considered lessor costs that should be accounted for as variable payments and included in the lessor’s revenue.
  • All lessors with variable payments that relate to both lease and nonlease components are now required to allocate certain variable payments to the lease and nonlease components when the changes in facts and circumstances on which the payment is based occurs. The lessor will apply the guidance in Topic 842 to recognize amounts allocated to the lease components. The amounts allocated to the nonlease components will be recognized in accordance with the guidance in other Topics.

The amendments are effective as follows:

  • For public business entities that have not yet adopted Topic 842, the effective dates and transition requirements are the same as for Topic 842.
  • For entities that have already adopted Topic 842, the amendments can be applied retrospectively or prospectively, and can be elected as of the:
  • Original effective date of Topic 842;
  • For first reporting period ending after December 31, 2018; or
  • First reporting period beginning after January 1, 2019.

To access the full script of ASU No. 2018-20, click here


This communication contains a general overview of the topic and is current as of January 4, 2019. 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 2019. All rights reserved.


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Michelle Balmer

Michelle Balmer CPA, CA

Vice President, Assurance

Michelle Balmer, CPA, CA, is a Senior Assurance Services Partner with MNP. With 14 years of experience in public practice, Michelle helps a broad range of public and privately held companies in a variety of industries. She also works on special projects, including costing studies, benchmarking and best-practice studies, operational analyses, litigation support and due diligence.

As a key member of MNP's Assurance team, Michelle has played an instrumental role in assurance policy development, implementing accounting and assurance standards firm-wide and educating assurance practitioners regarding methodologies and new pronouncements. She also provides technical advice and consultation on accounting and assurance issues, as well as on rules of professional conduct issues, to all MNP practitioners.

Michelle was certified a Chartered Accountant (CA) after obtaining a Bachelor of Commerce degree from the University of Alberta. She has been actively involved with the Institute of Chartered Accountants of Alberta, including the Chartered Accountants School of Business, in an instructional and marketing capacity. An avid volunteer, she has assisted numerous groups such as the Easter Seals of Alberta, Paralympic Sports Association and Junior Achievement of Northern Alberta.