FASB proposes lease accounting changes for land easements

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The Financial Accounting Standards Board has a proposed accounting standards update to clarify how to apply its new lease accounting standard to land easements.

Often referred to as “rights of way,” land easements govern the right to cross, access or use someone else’s land for a particular reason. Organizations use a variety of ways to account for land easements and FASB wants to clarify how they should be treated under the new leasing standard.

The lease accounting standard does provide some guidance on land easements, but it can be complicated. Some of FASB’s stakeholders have pointed out one of the requirements, to evaluate all existing land easements not previously assessed under the existing leases guidance to determine if they meet the definition of a lease under the new leases standard it released last year, would be costly and complex (for instance, because of the volume and age of those easements). They also argued there would be limited benefit to applying this requirement because many land easements wouldn’t even meet the definition of a lease. And even if the easement did meet the definition, many easements are prepaid so they’re already recognized on the balance sheet.

The proposed accounting standards update aims to address some of the concerns about the costs and complexity of complying with the transition requirements of the new leases guidance by providing an optional transition expedient for land easements that weren’t previously assessed under the existing lease accounting guidance.

“Since issuing our new Leases standard in 2016, the FASB has heard concerns from stakeholders about the application, cost and complexity of the new leases guidance to land easements,” said FASB Chairman Russell G. Golden in a statement. “We encourage stakeholders to review the proposed ASU and share their views on whether they think its provisions would address the issues raised.”

FASB is asking for comments on the proposed update by Oct. 25, 2017.

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Accounting standards Financial reporting