FASB Proposes Lease Standard Tweak to Account for Land Easements

By:
Chris Gaetano
Published Date:
Sep 28, 2017
By Photos public domain [Public domain], via Wikimedia Commons

The Financial Accounting Standards Board (FASB) has proposed changing the lease accounting standard to clarify that, yes, a land easement should be evaluated as a possible lease, though there would be a practical expedient for those granted prior to the standard's approval. A land easement is the right to use, access or cross another entity's land for a specified purpose, like power and cable lines. The FASB said that, currently, there's no consistent treatment for land easements: some account for them using the lease standard, but others use the guidance for intangibles and goodwill, while others still use the guidance for property, plants and equipment.

The proposal was made in response to stakeholder concerns regarding the practicality of using the lease guidance to account for land easements, saying that evaluating all existing land easements to assess whether they meet the definition of a lease would be a Herculean ordeal and that, furthermore, most easements wouldn't even meet the definition of a lease anyway. 

The FASB proposed that the standard would be updated to clarify that land easements are required to be assessed under the lease standard in order to determine whether the arrangements are, or contain, a lease. However, in response to stakeholder concerns about cost and complexity, the proposal also contains a practical expedient allowing entities to not apply the lease standard to land easements that exist or expired before its effective date, provided they were not previously assessed under the standard. If an entity elects to use this practical expedient, it must do so consistently for all of its existing or expired land easements not already assessed under the lease standards. 

The FASB shall be accepting comments on the proposal until Oct. 25. 

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