Accounting Standards Update · 2023

ASU 2023-01 — Leases (Topic 842): Common Control Arrangements

The amendments in this Update address two issues:

Issue 1: Terms and Conditions to Be Considered

The amendments in this Update provide a practical expedient for private companies and not-for-profit entities that are not conduit bond obligors to use the written terms and conditions of a common control arrangement to determine:

1
Whether a lease exists and, if so,
2
The classification of and accounting for that lease.

The practical expedient may be applied on an arrangement-by-arrangement basis.

Issue 2: Accounting for Leasehold Improvements

The amendments in this Update are applicable for all entities and require that leasehold improvements associated with leases between entities under common control be:

1
Amortized by the lessee over the useful life of the leasehold improvements to the common control group as long as the lessee controls the use of the underlying asset through a lease. If the lessor obtained the underlying asset through a lease with another entity not within the same common control group, the amortization period may not exceed the lease term associated with the lessor’s lease with the other entity.
2
Accounted for as a transfer between entities under common control through an adjustment to equity (or net assets for not-for-profit entities), if, and when, the lessee no longer controls the use of the underlying asset.

Additionally, those leasehold improvements are subject to the impairment guidance in Topic 360, Property, Plant, and Equipment.

This Accounting Standards Update is the final version of Proposed Accounting Standards Update 2022-ED500—Leases (Topic 842): Common Control Arrangements, which has been deleted.

Accounting Standards Update No. 2023-01 (PDF)

Issued: March 27, 2023

Text as published in the FASB Accounting Standards Codification, Basic View.