FASB Improves Leases Guidance on Related-Party Arrangements
March 27, 2023
The Financial Accounting Standards Board (FASB) today issued an Accounting Standards Update (ASU) that improves the guidance for applying Topic 842, Leases, to arrangements between entities under common control.
During the FASB’s post-implementation review (PIR) of Topic 842, certain stakeholders expressed concerns with applying Topic 842 to related party arrangements between entities under common control.
The ASU provides private companies and not-for-profit organizations that are not conduit bond obligors with a practical expedient to use the written terms and conditions of a common control arrangement to determine whether a lease exists and, if so, the classification of and accounting for that lease.
In addition, the ASU requires all entities (that is, including public companies) to amortize leasehold improvements associated with common control leases over the useful life to the common control group.