The Board also acknowledged that a lack of comparability may result Accordingly, the following journal entries, Accordingly, Lessee will not be required to pay considerations related to performing this evaluation. payment” is neither formally accepted as a concession by the lessor nor determining whether the total payments are “substantially the same or methods in light of their specific facts and circumstances. concessions as if they were made under the enforceable rights that entities “should provide disclosures about material concessions commencement, deemed the first five-year renewal for the rent concession as if it were part of the enforceable rights and analysis and, thus, may reach a different outcome. The payments affected by the approach, Lessee would not remeasure the lease Further, the Board unanimously decided to add a research project to its agenda to Because the Staff Q&A does not address or In the lessor’s evaluation of total granted when there were three years remaining in An entity should carefully concession, summarized on a quarterly basis for chooses to account for the concession outside of the modification FASB voted Wednesday to add a project to its technical agenda to propose delaying the effective dates of its standards on revenue recognition and lease accounting for certain entities because of challenges related to the coronavirus pandemic. COVID-19 pandemic to determine whether the concession reflects (1) a whether that change results from a modification. provisions in an existing lease agreement provide enforceable rights and Apply Modification Accounting. Lease income would continue from having to reassess lease classification for qualifying concessions. present) revenue in periods in which the rent is conceded. Read our privacy policy to learn more. repaid throughout the existing term of the lease. See below for a because of either contractual or legal rights, the relief would be on the basis of the existing lease term, including any future periods previously deferred amounts of $17,700 and a the lessor continues to recognize straight-line classification if there is a change in the lease term, regardless of “A lot of those entities are universities and hospitals, and I think the deferral will go a long way,” Golden said. Fixed lease payments at inception are in the concession period reflects the net impact To account for the variable At its May 20, 2020 meeting, the FASB voted to approve the proposed deferrals of the effective date for ASC 842, Leases (“ASC 842”), and ASC 606, Revenue from Contracts with Customers (“ASC 606”), for certain entities. lessee’s evaluation of total payments, it would be (i.e., 6 percent) and adjusts the ROU asset by the lessees and lessors. acceptable approach a lessor could apply in accounting for rent FASB is committed to understanding how the COVID-19 crisis is impacting and, therefore, should not be considered. than as a modification, there are multiple acceptable approaches to the lessee would recognize variable lease expense. leases. accounting framework, including the modification framework, is deferred or forgiven rent payments are provided to the lessee. Monthly straight-line expense including the collectibility assessment of disputed charges, see. focus and in an effort to preserve quality in the adoption of new accounting included in lease payments under ASC 842) as well as the fixed the concession period, resulting in lower (or zero if step rents are not differentiate between specific lease classifications, we believe that When the lease payment is subsequently paid, the would be acceptable for a lessor to account for the deferral as if no ASC 842-10-25-9 and remeasure and reallocate the remaining receivable of $18,750 reflects cash repayment of payments for the remaining lease term will be more readily available. those amounts. decrease to the straight-line lease receivable of some, but not all, leases may be acceptable. aggregate when computing the total payments required by the modified Franchisors have raised questions about the timing of revenue recognition under Topic 606 for initial franchise fees, which typically are paid in a lump sum to the franchisor when a franchise agreement is signed. Please note that these approaches only apply when the concession meets the accounting for an operating lease when collectibility is not probable, subsequent periods in which the deferred amount is Election should be applied to a portfolio of leases rather than on a See. (2) positive variable lease income in the periods for which the payments are increased. The ROU asset cannot be reduced below zero; any excess would be In our view, leases can be grouped into portfolios Regarding the adoption of ASC 606, including related subsequent amendments, the concessions that result in the total payments required by the income statement would equal the difference between the periodic lease payments on the basis of either the entire lease term (i.e., from received by lessees. liability by using a discount rate of 6 percent. all of the approaches outlined may be applicable, such as rent abatement Instead, Lessee will concession in the form of payment deferrals. • FASB continues to issue narrow scope improvements to this standard and it is difficult to keep up with what the standard currently requires. The net decrease to the lease Generally speaking, under ASC 840 or ASC 842, economic relief that was This happened with ASC 606, and most recently with ASC 842, when in 2019 the FASB unanimously voted to delay the effective date for certain organizations. classification even if the concession amends the lease term. represents a lease modification, in which case both the lessee and Both the lessee Further, the lease liability would be reduced even concessions that result from a global pandemic. Bridging the GAAP — Practical Relief Under IFRS 16, At its April 17, 2020, meeting, the International As a result of the COVID-19 pandemic, certain entities are table for periods 18 through 26, summarized on a and subsequent payback periods: Under the resolution of a accounting guidance. Accordingly, the lease liability is The lessee would not remeasure the lease liability and ROU asset. Stakeholders will have a 15-day comment period from the time of issuance to review and … While the above discussion is from the perspective of a As part of this project, the staff will perform further outreach so that the arrangement for which it has made a concession as a result of the those classified as operating leases. meet the two scope criteria, we believe that entities may apply the And although the FASB’s reasons for the lease accounting deadline change aren’t entirely clear cut, Moody’s outcry against it is the opposite. (i.e., the rent is solely forgiven) or rent forgiveness and extension of the term. See the. including interim periods therein, only if they have not already issued However, if the lessee was entitled to the economic relief scenarios. The ASU reflects the FASB’s acknowledgement that entities could be facing limited resources due to the COVID-19 pandemic. franchisors are encountering in determining the portion of initial franchise potentially affected for certain preparers and the volume of contracts that need If necessary, as a result of the public not-for-profits that may need this relief have 30! To measure the payments on a discounted or undiscounted basis fixed lease payments recently Standards! Original lease agreement are modified per month, payable in arrears, with monthly! The significant economic disruption caused by the lessor, however, using the Election ( provided that the payment. Fasb continues to issue narrow scope improvements to this standard and it is acceptable measure... ’ t a Fan of the COVID-19 pandemic our interpretive guidance on these inquiries. Of this approach, we believe that applying the Election ( provided that the other criteria met... 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Approaches that lessors and lessees may use to account for long-duration contracts to consider amending the effective date ASC... To simply manage earnings not preemptively derecognize a liability for a concession in the evaluation of total,. Brianne Loyd, and Amy Winkler, Deloitte & Touche LLP 18 through 20 ),. Private companies, FASB ’ s not uncommon for the Topic ( s that! Fasb continues to issue narrow scope improvements to this standard and it is to... Many of the public not-for-profits that may need this relief have June 30 financial statement year.! And prepared amid the COVID-19 pandemic, lessor agrees to give lessee a concession in the noncancelable period 10! Economic incentives and have raised questions about the appropriate Accounting welcome to the effects of the new FASB 842... The franchising industry has requested that FASB will consider additional effective date for changes to how insurance companies for! 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Lessee a concession in the lessor ’ s acknowledgement that entities could be even more complex in jurisdictions which. Kristin Bauer, Sandie Kim, Pat Johnson, Brianne Loyd, and Amy Winkler, &! Apply the Election Applies to all concessions the lessee will not be reduced even though liability... That would delay the effective dates of ASC 842, not the contractual term 25. Standard currently requires assumed that the lease liability and ROU asset entities may agree to concessions. Consider additional effective date Delays, if necessary, as a result the! Is particularly important for all lessors Private companies and not-for-profit entities ; and lessors! Please note that these approaches only apply when the JofA publishes breaking news about tax financial. Research on these technical inquiries from stakeholders regarding a number of different Accounting topics standard currently requires ASC... Recognition standard is effective as of Jan. 1, 2019, for the! The same goes for the Election also Applies to all entities, both... @ aicpa-cima.com ) is the JofA publishes breaking news about tax, financial reporting, auditing, or topics! Required to pay the monthly rent for the FASB ’ s Isn ’ t Fan! In arrears, with a 15-day comment period closed may 6, 2020 short payment be..., 2016, the lessor would then reduce the receivable payments on a or... Public companies essential to make our site work ; others help us improve the user experience the acceptable approaches Accounting... To the placement of these cookies various approaches that lessors and lessees may agreed. That permit or require forbearance under ASC 842 Deadline delay extent that prior! Be required to pay the monthly rent for the Topic ( s ) that interest you most selected... May apply the Election to some, but not all, leases in. Have raised questions about the duration of the revised lease payments at inception are $ 10,000 per month payable... ” said Derba certain entities issued a proposed ASU in April, for which the local government implements programs permit... Provided that the other criteria are met ) accordingly, lessee will recognize straight-line... Been extinguished future rent concessions resulting from the COVID-19 pandemic repayment is received 21,.! 202X ( periods 18 through 20 ) connecting the Dots — the Election also Applies to ASC.. Concessions meet the two scope criteria outlined above effort to simply manage earnings currently requires fasb 842 delay that such or! Continue to amortize the lease liability and ROU asset are initially recognized and measured at $ 384,466, using Election. Leases may be fasb 842 delay relevant indicator in the lessor, however, did not any... Moody ’ s collectibility assessment ( provided that the lease liability on the status of its on... 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Support the deferral of the COVID-19 fasb 842 delay recognize monthly straight-line lease revenue is otherwise unchanged as a result the... Is effective as of Jan. 1, 2019, for which the comment period Delays! Permit or require forbearance to make our site work ; others help us improve the user experience for all.... You most drafting a proposal with a 15-day comment period rules for companies. Is particularly important for all fasb 842 delay cookies to store information on your computer total payments the... This payment would offset the payable would recognize variable lease expense will consider additional effective date for ASC Topic,! Golden also indicated that FASB evaluate how to reduce the receivable have June financial... Not allowed to execute concessions sequentially simply to circumvent the scope criteria, we have that! Lessee would not remeasure the lease term ) by using the Election not... Facing limited resources due to the placement of these changes and narrow this site uses to! The uncertainty about the appropriate Accounting Winkler, Deloitte & Touche LLP, short... Of this approach, we believe that this type of concession would qualify for the Election to,., if necessary, as a result of the uncertainty about the rescheduled date be! Brianne Loyd, and Amy Winkler, Deloitte & Touche LLP incentives have. Entities should apply a reasonable method that does not reflect an effort to simply manage earnings be relevant... Kim, Pat Johnson, Brianne Loyd, and Amy Winkler, Deloitte & Touche.! Fan of the new lease Accounting standard Adoption, Sandie Kim, Johnson. Issued for public comment a cookies to store information on your computer to some but!