On July 30, 2018, the FASB issued a greatly anticipated ASU related to the new lease standard. ASU 2018-11, Leases (Topic 842), Targeted Improvements, has two provisions that are intended to make transition to the new lease standard easier and less costly. One is an additional transition method, providing transition relief that will be of great interest to lessees and lessors. The other provides a new practical expedient for lessors in their identification and separation of lease components.
The new lease standard, ASC 842, changes the treatment of common area maintenance (CAM) within a real estate lease contract. Many real estate leases include some form of CAM, such as cleaning a building lobby, snow removal, landscaping, or janitorial services. Here are some things you need to know about CAM, including what is changing and a few practical examples.
Policy elections that must be made under the new lease accounting standard are a critical part of implementation planning. They impact your clients’ future accounting and financial statement disclosures and your clients may not have even considered them yet. For example:
- Do they understand the difference between lease and non-lease components?
- Do they know that there is a short-term lease exception available?
- Do they know how they want the presentation of lease assets and liabilities on their statement of financial position to appear?
- Do they know that there are a number of practical expedients available that can save them time, but that they must elect them?