By Allison M. Henry, CPA, CGMA, PICPA Vice President – Professional and Technical Standards

On March 27, 2023, the Financial Accounting Standards Board (FASB) released new guidance on accounting for related-party arrangements between entities under common control. This long-awaited guidance provides a practical expedient for arrangements between entities under common control to use written terms and conditions for determining whether a lease exists and, if so, the classification and accounting for that lease.

This practical expedient can be applied on an arrangement-by-arrangement basis and should help privately held and other in-scope entities by alleviating the need to determine whether the written terms and conditions are legally enforceable. The FASB even permits entities to document any previously unwritten terms and conditions of an arrangement before adopting the amendments. If no written terms and conditions exist, the entity would apply ASC 842 on the basis of an arrangement’s legally enforceable terms.

The update also requires all entities to amortize leasehold improvements associated with common control leases over the useful life to the common control group.

The new guidance is effective for fiscal years beginning after Dec. 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The transition method depends on whether or not the entity has already adopted ASB 842.

Please reach out to me at ahenry@picpa.org or at (215) 972-6187 with your questions regarding this new guidance and any ASC 842 implementation issues.

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