More Changes May be in the Pipeline for Lease Accounting

While FASB said earlier this year that it would hold off on making more amendments to the lease accounting standard in order to give private companies breathing room to adopt the rules this year, the board has signaled that it may change its posture. The issue surfaced under the board’s post-implementation review (PIR) of Topic 842, Leases, but was also raised by the Private Company Council (PCC) in June as a tough area to navigate for subsidiaries with the same parent company. Topic 842 took effect in January for privately owned companies that are calendar year-end filers of financial statements, requiring the full magnitude of long-term lease obligations to be reported on the balance sheet. But especially nuanced, and thus confusing, are the portions of guidance specific to related parties with sibling leases, as they must account for the legally enforceable terms of the lease contract. “And what we’re finding is that may not be actually consistent with some of these unwritten contracts,” Jennifer Booth, vice president of accounting at LeaseQuery, said on September 9. “With third parties you’re always going to have some type of written agreements because it’s two parties with different owners, but for these related party leases we’re seeing that that hasn’t always happened.” Booth said that companies would find additional guidance around leases between entities under common control helpful in clearing up confusion, but more amendments might be tricky for companies that have already adopted the standard.

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Private Foundations Find Credit Loss Accounting Rules Complex for Certain Investments

Private foundations are challenged when applying new credit loss accounting rules to programmatic-related investments, uncertain about whether to report loans or intended grants, according to a FASB nonprofit advisory panel. Implementing Topic 326, Credit Losses, gets tricky for such investments around financial guarantees, the Not-for-Profit Advisory Committee (NAC) said on September 13.“This is a situation where we may guarantee a commitment for vaccines of another organization and we’re not charging them a fee, but my understanding is you have to look at both the expected loss from that agreement plus you also have to look at the noncontingent portion,” Jennifer Deger, director of finance and global controller at the Bill & Melinda Gates Foundation, said. “The noncontingent portion typically would be the fee but we’re not charging, so what does that mean for us?” she said. “It’s just super specific and technical where we don’t fit exactly the fact pattern that maybe a for-profit bank would—we can figure it out, it’s just that we have to understand how to apply it.” Other challenges surround coming up with reasonable and supportable forecasts—especially with respect to the Community Development Financial Institutions Fund (CDFI Fund), the discussions indicated. CDFIs provide capital and financial services in economically disadvantaged communities. The discussion comes as not-for-profit entities are required to adopt the current expected credit losses (CECL) standard in 2023, if they are calendar-year end filers, or for their 2023/24 fiscal years.


New ESG Accounting Disclosure Rules Might Not Be Issued Until Next Year

The International Sustainability Standards Board (ISSB) might not issue new disclosure rules on climate and general sustainability matters until perhaps early next year, according to meeting papers published on September 9. Earlier this year, the ISSB had set an ambitious goal of finalizing its March proposals by year-end on IFRS S1, “General Requirements for Disclosure of Sustainability-related Financial Information,” and IFRS S2,”Climate-related Disclosures,” separate drafts on what will be the board’s first batch of environmental, social and governance (ESG) related disclosure rules issued for global use. The board may have to wait until “as early as possible in 2023” to issue new rules, the papers state. The insights were included in the September 20–23 meeting papers of the ISSB’s second set of meetings in Frankfurt. The 14-member board, which was recently fully seated, will hear a summary of comment letter responses to the proposals and vote on a plan for redeliberation. Almost all of the 700 respondents to the proposals “supported the ISSB’s overall aim to develop a comprehensive global baseline of sustainability-related financial disclosures for the capital markets,” and “strongly welcomed the intention to consolidate multiple standards and frameworks into a single set of high-quality sustainability disclosures standards,” the papers explained.