The Financial Accounting Standards Board issued a proposed accounting standards update Wednesday to improve accounting guidance for arrangements between entities under common control.
The proposed ASU would provide private companies and not-for-profit organizations that are not conduit bond obligors with a practical expedient that would allow them to use the written terms and conditions of an arrangement between entities under common control to determine whether a lease exists and, if so, the classification of and accounting for that lease.
In FASB's post-implementation review of Accounting Standards Update No. 2016-02, "Leases" (Topic 842), stakeholders expressed concerns with applying Topic 842 to related-party arrangements between entities under common control. Specifically, those areas are which terms and conditions should be considered when determining whether a lease exists and, if so, the classification and accounting for the lease; and, the accounting for leasehold improvements associated with leases between entities under common control.
The proposed ASU would also change the accounting for leasehold improvements associated with leases for all entities (including public companies) under common control. Leasehold improvements associated with those leases would be amortized by the lessee over the economic life of the leasehold improvements as long as the lessee controls the use of the leased asset.
FASB is asking for comments on the proposed update by Jan. 16, 2023.
