More changes to ease lessor adoption of the new leases standard

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In brief , PwC US Nov 01, 2018

FASB tentatively approves changes to lessor accounting for sales and similar taxes and certain lessor costs.

What happened?

On October 31, the FASB tentatively approved the following amendments designed to make lessors adoption of the new leases standard easier:

  • As an accounting policy election, a lessor may account for sales tax and other similar taxes collected from a lessee as lessee costs. If this policy is elected, a lessor would exclude these costs from contract consideration and variable consideration and present revenue net of these costs. Certain disclosures will be required. A lessor’s gross receipts taxes are excluded from this policy election.
  • A lessor should exclude from variable payments all lessor costs that are explicitly required to be paid directly by a lessee on behalf of the lessor to a third party. Examples include property taxes and insurance. This means that the lessor would report revenue net of these amounts.
  • Costs that are not part of contract consideration that are paid by a lessor to a third party and reimbursed by the lessee are considered lessor costs and would be accounted for as variable payments by the lessor. The lessor would therefore report these amounts gross on the income statement.

These amendments will be applicable to all leases that exist as of the effective date and all new leases entered into on or after the effective date of the new leases standard.

The effective date for these amendments will be the same as the effective date for the new leases standard. Entities already applying the new standard may apply these amendments (1) as of the entity’s original effective date of the new leases standard, (2) in the first reporting period ending after the issuance of the amendments, or (3) in the first reporting period following the issuance of the amendments. Either retrospective or prospective adoption is permitted for such entities.

Why is this important?

These amendments are expected to save lessors time and cost and reduce complexity.

What's next?

We expect the final guidance to be issued in mid-December, 2018.

To have a deeper discussion, contact:

Scott Tornberg

Partner, National Professional Services Group, PwC US


Ashima Jain

Managing Director, National Professional Services Group, PwC US


Contact us

David Schmid

International Accounting Leader, National Professional Services Group, PwC US

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