Fall 2021 ACCTFAX

Published November 15, 2021 By Philip Miller, Greg Taylor, and Bill Erlenbush

Originally published in The Cooperative Accountant, Fall 2021 Issue


On July 19, 2021, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) intended to improve an area of the leases guidance related to a lessor’s accounting for certain leases with variable lease payments.

During the FASB’s post-implementation review (PIR) of leases (Topic 842), the Board received an agenda request highlighting an issue encountered by lessors.  Specifically, a lessor may be required under Topic 842 to recognize a selling loss at lease commencement (day-one loss) for a sales-type lease with variable payments even if the lessor expects the arrangement will be profitable overall.  Stakeholders highlighted that this accounting outcome results in financial reporting that does not faithfully represent the underlying economics either at lease commencement or over the lease term. Therefore, users of financial statements are not being provided with information for those transactions that is decision useful.

To address this, the Board is issuing this ASU to amend lessor lease classification requirements. Specifically, a lessor is now required to classify and account for a lease with variable payments as an operating lease if (a) the lease would have been classified as a sales-type lease or a direct financing lease and (b) the lessor would have otherwise recognized a day-one loss. A day-one loss or profit is not recognized under operating lease accounting. The resulting financial reporting is expected to more faithfully represent the economics underlying the lease and improve the decision usefulness of information provided to the users of financial statements.

The ASU is available at www.fasb.org.


The Private Company Council (PCC) met on Monday, June 21 and Tuesday, June 22, 2021. Below is a brief summary of topics addressed by the PCC at the meeting:

PCC Issue No. 2018-01, “Practical Expedient to Measure Grant-Date Fair Value of Equity-Classified Share-Based Awards”: The PCC reached a final consensus on a practical expedient for a private company to determine the current price input of equity-classified share-based awards issued to both employees and nonemployees that describes the characteristics of a reasonable application of a reasonable valuation method. The PCC discussed significant external review feedback and addressed sweep issues related to scope, application, disclosure, effective date, and measurement.

Profits Interests and Their Interrelationship with Partnership Accounting: FASB staff provided the PCC with an update on the research and outreach conducted by the staff and Working Group on this PCC research project. PCC members shared their experiences with profits interests in practice, noting that generally profits interests awards are granted to senior management and that the terms of the awards are diverse and can be complex. PCC members noted that there are challenges associated with measuring profits interests and some noted that determining whether to apply the guidance in Topic 718, Compensation—Stock Compensation, or Topic 710, Compensation—General, can be challenging.

To read the full article, visit https://nsacoop.org/publications/tca or NSAC Connect