Part of Proposal on Lease Accounting Draws Skepticism

FASB’s November 2022 proposal on lease agreements between commonly controlled entities received mixed reviews with regard to whether certain provisions should also be applicable to public companies. Close to half of the respondents to Proposed Accounting Standards Update (ASU) 2022-ED500, “Leases (Topic 842): Common Control Arrangements,” said they disagreed with or were uncertain whether FASB got it right when it included public companies in the mix of revisions it crafted for reporting leasehold improvements—such as upgrades to commercial property such as carpeting, painting or other repairs. “While the amendments may be operable, we believe that requiring them for all entities is premature and could lead to greater financial reporting costs,” Deloitte & Touche LLP said in its Jan. 17 comment letter, adding that more outreach to public companies was needed. The remarks echo similar concerns by three FASB members who had dissented to that aspect of the proposal, citing insufficient information about its impact on public companies. The pushback stems from concerns that changing leasehold rules for public companies—which already adopted the leases standard two years ago—would do more harm than good. Under the proposal, leasehold improvements would be required to be “amortized by the lessee over the useful life of the improvements (regardless of the lease term) as long as the lessee continues to use the underlying asset” and “accounted for as a transfer between entities under common control if, and when, the lessee ceases using the underlying asset.” Currently, Topic 842, “Leases,” generally requires that leasehold improvements be amortized over the shorter of the remaining lease term and the useful life of the improvements.


New Climate and Sustainability Disclosure Rules Expected by June.

New climate and sustainability disclosure rules are on track for issuance by the end of this year’s second quarter, International Sustainability Standards Board (ISSB) Chair Emmanuel Faber affirmed. The board plans to complete its re-deliberations in February. After that, the ISSB will be balloted, a process that enables standards-setters to take a final look at the draft standards one last time before they are published. Re-deliberations have been based on the more than one thousand comment letter responses that the board received on IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information, and S2, Climate-related Disclosures, which were issued in March 2022 for public comment. The standards are being developed to provide a global baseline of financial reporting disclosure rules for reporting environmental, social and governance (ESG) related issues. Among other recent decisions, the board agreed to provide companies with an exemption for commercially sensitive information and to require companies to disclose how international climate agreements, including those on a national level, inform their climate-related targets. The new issuance date is later than had been announced last year by the board. Initially, the issuance date had been set for the end of 2022. Still, with the new timeline the process toward the development of the standards moved very quickly—literally under a year, including proposals.


Auditing Standards Board to Vote on Final Group Audits Standard

The AICPA’s Auditing Standards Board (ASB) has a full meeting scheduled for Jan. 30/31, 2023, with almost a dozen agenda items, including a vote to finalize its proposal on group audits. The board is has been moving quickly since the exposure draft was issued in March 2022 in Proposed Statement on Auditing Standards (SAS), “Special Considerations—Audits of Group Financial Statements.” If finalized, this would supersede SAS 122, Statements on Auditing Standards: Clarification and Recodification, as amended, AU section 600, Special Considerations, Audits of Group Financial Statements (Including the Work of Component Auditors). The exposure draft notes that the ASB worked on this proposal to improve the quality of group audits by clarifying and reinforcing that all applicable sections in the standards need to be applied in a group audit engagement. The ASB strives to converge its standards with those issued by the International Auditing and Assurance Standards Board (IAASB). In December 2021, the IASSB voted to finalize a standard that revises International Standard on Auditing (ISA) 600, Special Considerations, Audits of Group Financial Statements (Including the Work of Component Auditors). The IAASB issued the final standard in April 2022.