Targeted Improvements exposure draft released

On Jan. 5, the FASB released an exposure draft for two "targeted improvements" to the new ASC 842 lease accounting standard. I had mentioned one of them in a prior blog post. Both would be optional. The proposed improvements are:

1) Option to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in its financial statements. Current ASC 842 requirements call for leases to be converted to the new standard as of the start of the first year shown in the comparative reporting of financial reports. In general, that means going back two years, so if you apply ASC 842 as of Jan. 1, 2019 (such as issuers on calendar year fiscal years), you have to set up operating lease liabilities and assets as of Jan. 1, 2017.

Under the proposed improvement, you would have the option to stick with this date two years back, or to change over effective on the implementation date (Jan. 1, 2019, in this example). This eliminates reporting 2017 & 2018 two different ways: using FAS 13 when posting original results, then using ASC 842 when creating 2019 reports. However, it means that results will be less comparable between current and prior years when you report your 2019 results.

2) For lessors, an option to combine lease and nonlease components for operating leases. This option must be chosen as an accounting policy election by class of underlying asset; in other words, all leases of a particular class of asset must be treated the same way. There is a further requirement that the timing and pattern of revenue recognition for the lease and nonlease components are the same. If elected, this policy must be disclosed, including the nature of the nonlease components involved.

This exposure draft is open for comments for one month (until Feb. 5). Comments may be submitted either online or by email to, File Reference No. 2018-200.