FASB Provides Transition Relief for Land Easements
On Jan. 25, the Financial Accounting Standards Board (FASB or board) issued a final accounting standards update (the ASU) that provides a practical expedient for accounting for land easements under the new leases standard. Nareit member companies operating as equity REITs that have land easements will be interested in the transition relief for existing or expired land easements. The ASU provides an optional transition practical expedient to not evaluate existing or expired land easements under the new leases standard (i.e., Topic 842 ) that were not previously accounted for as leases under the current leases guidance in Topic 840.
Companies that elect the practical expedient should apply it consistently to all existing or expired land easements that were not previously accounted for as leases under Topic 840. Once companies adopt Topic 842, companies should apply that Topic to all new or modified land easements to determine whether the arrangement should be accounted for as a lease.
Companies that do not elect the practical expedient should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. Companies should continue to apply their current accounting policy for accounting for land easements that existed before the companies’ adoption of Topic 842. For example, if a company currently accounts for certain land easements as leases under Topic 840, it should continue to account for those land easements as leases before adopting Topic 842.
The ASU has the same effective date as Topic 842, which is for annual periods beginning after Dec. 15, 2018. Companies that have already early adopted the new leases standard should apply the ASU upon issuance.