NAREIT Alert (June 22, 2017)

June 22, 2017

On June 21, the Financial Accounting Standards Board (FASB or Board) met to discuss an implementation question related to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), and Accounting Standards Update No. 2016-02, Leases (Topic 842).  Over the past few months, NAREIT and other constituents have questioned whether common area maintenance in gross leases should be accounted for separately when the new Revenue Recognition standard is implemented in 2018 or when the new Leases standard is implemented in 2019. The Board clarified that it did not intend for companies to revisit the allocation of contract consideration to lease components within the scope of the new Leases standard when an entity adopts the new Revenue Recognition standard. [Note this clarification is limited to situations where companies decide not to early adopt the new Leases standard coincident with the new Revenue Recognition standard.] The Board instructed the staff to include this clarification in meeting minutes that will be available on the FASB’s Revenue Recognition webpage.

NAREIT understands that this clarification will not impact a company’s decision on whether they may elect the practical expedients in the Leases standard. Thus, if companies decide to elect the basket of practical expedients, they will not need to revisit historical accounting for Leases. Therefore, the new Leases standard would apply to new leases executed after the effective date (i.e., 1/1/2019 for calendar year-end public companies).

Contact: Christopher Drula (cdrula@nareit.com) or George Yungmann (gyungmann@nareit.com).