Proposed Clarification of Lease Accounting Rules for Subsidiaries Controlled by the Same Parent Company
FASB has proposed what could be the eighth round of changes to lease accounting rules, this time to address subsidiaries that are involved in inter-company agreements and controlled by the same parent company. The guidance aims to clarify Topic 842, Leases, for related parties controlled by a common entity: how to determine whether a lease exists, its classification and accounting treatment; plus how to account for leasehold improvements (i.e., upgrades to commercial property such as carpeting, painting, or other repairs). This round of proposed changes was not endorsed by the full seven-member FASB as three—Christine Botosan, Frederick Cannon, and Gary Buesser—dissented, disagreeing on the portion related to leasehold improvements “on conceptual and pragmatic grounds.” The issues being addressed surfaced during the board’s post-implementation review (PIR) of Topic 842 to determine whether it is working as intended. The standard, which requires the full magnitude of long-term lease obligations to be reported on the balance sheet, went into effect in 2019 for public companies and in 2022 for private companies. Since its issuance in 2016, Topic 842 has been amended seven times. The board is seeking public feedback by January 16, 2023.
OECD Tax Reform Prompts Amendment of Income Tax Accounting Rules
The IASB said it would issue a proposal in January 2023 that would amend income tax accounting rules to provide a temporary exemption to stem the complications coming from recent international tax reforms. The rules are being developed in response to concerns raised by the accounting profession about the potential implications of the imminent implementation of the December 2021 Organization for Economic Co-operation and Development (OECD) Pillar Two model rules on accounting for income taxes. The guidance will be proposed with a 60-day comment period, the board said. If finalized during the second quarter of 2023 as planned, the changes would amend International Accounting Standard (IAS) 12, Income Taxes, and take effect immediately. Robust disclosures will also be proposed, to be required before the tax legislation takes effect. Two IASB members—Bertrand Perrin and Bruce Mackenzie—said they would consider dissenting on grounds of the disclosure requirements.
Public Feedback Sought on Proposed IFRS Taxonomy 2022 Updates
The IASB said it is seeking public input on potential updates to the IFRS Accounting Taxonomy that relate to recently issued guidance on sale and leaseback transactions and debt with covenants. The board issued “IFRS Accounting Taxonomy 2022—Proposed Update 2 Lease Liability in a Sale and Leaseback and Non-current Liabilities with Covenants,” which proposes changes to taxonomy elements to reflect the new and amended disclosure rules that were introduced. Specifically, the proposal would update the 2022 taxonomy to reflect disclosure requirements arising from “Lease Liability in a Sale and Leaseback,” which was issued in September as an amendment to International Financial Reporting Standard (IFRS) 16, Leases; and “Non-current Liabilities with Covenants,” which was issued in October to amend International Accounting Standard (IAS) 1, Presentation of Financial Statements. Companies should weigh in on fives questions, including whether the proposal adequately reflects the disclosure requirements arising from both accounting standards, according to proposed text. Other questions surround whether element and document labels and presentation groups were appropriately used or included. Comments are due by December 28.