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


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.


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.

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