FASB Issues Transition Practical Expedient And Clarifies the Application of ASC 842 For Land Easements

Details

ASU 2018-01, Land Easement Practical Expedient for Transition to ASC 842, was recently released by the FASB to ease the adoption of ASU 2016-02, Leases (ASC 842), for entities with land easements that exist or expire before an entity’s adoption of ASC 842. The ASU will benefit entities that do not account for those land easements as leases under existing GAAP (ASC 840). The new amendment is available here. Its effective date and transition requirements are the same as ASU 2016-02, i.e., beginning in 2019 for public business entities.

Background

At this time, there is diversity in practice in the accounting for land easements, which are also commonly referred to as rights of way, and represent the right to use, access, or cross another entity’s land for a specific purpose. Entities typically account for their land easements by applying ASC 350, Intangibles–Goodwill and Other, ASC 360, Property, Plant, and Equipment, or ASC 840, Leases. Entities that do not currently account for their land easements under ASC 840 indicated that evaluating all existing or expired land easements in connection with the adoption of ASC 842 would be costly and complex. They note that there will be limited benefit as many of their land easements are already on the balance sheet since they are prepaid, and many of them would not meet the definition of a lease under ASC 842.

It should be noted that the amendments are intended to reduce the cost and complexity associated with assessing whether all existing and expired land easements meet the definition of a lease. They allow entities who previously did not account for land easements under ASC 840 to elect a transition practical expedient to not assess those land easements under ASC 842. After an entity adopts ASC 842, it must apply that Topic prospectively to all new or modified land easements, and may only apply the guidance in Example 10 of ASC 350-30 after concluding that a land easement does not meet the definition of a lease in ASC 842. An entity that currently accounts for land easements under ASC 840 may not elect this practical expedient.

Please note that the effective date and transition requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02, which takes effect in 2019 for public business entities and 2020 for all other entities, but may be early adopted. An entity that early adopted ASC 842 should apply the amendments in this Update upon issuance.

About Centri Business Consulting, LLC

Centri Business Consulting provides the highest quality advisory consulting services to its clients by being reliable and responsive to their needs. Centri provides companies with the expertise they need to meet their reporting demands. Centri specializes in financial reportinginternal controlstechnical accounting researchvaluationmergers & acquisitions, and tax, CFO and HR advisory services for companies of various sizes and industries. From complex technical accounting transactions to monthly financial reporting, our professionals can offer any organization the specialized expertise and multilayered skillsets to ensure the project is completed timely and accurately.

Philadelphia
Eight Penn Center
1628 JFK Boulevard
Suite 500
Philadelphia, PA 19103
New York City
530 Seventh Avenue
Suite 2201
New York, NY 10018
Raleigh
4509 Creedmoor Rd
Suite 206
Raleigh, NC 27612
Tampa
615 Channelside Drive
Suite 207
Tampa, FL 33602
Boston
50 Milk Street
16th Floor
Boston, MA 02109
Tysons Corner
1775 Tysons Blvd
Suite 4131
McLean, VA 22102
Denver
8310 South Valley Highway
3rd Floor
Englewood, CO 80112
Centri Everywhere
1-855-CENTRI1
virtual@CentriConsulting.com

02/21/2024

Understanding SEC Comment Letter Trends – How to Improve Financial Reporting & Communication with Stakeholders

The Securities and Exchange Commission (SEC) is required to review every public...

Read More

02/20/2024

5 Steps to Improve Value Creation in Private Equity Portfolio Companies

Optimizing operational efficiency in the fast-paced world of private equity is a...

Read More

02/20/2024

Centri’s Cultivating Business: Utilizing PR in the Cannabis Industry, featuring Mike Mejer

Join Centri’s Cannabis Practice Leader, Kevin McLaughlin, for the latest edition of our Cultivating Business...

Read More