As companies are about to begin reflecting new lease accounting rules, the Financial Accounting Standards Board has approved some minor edits intended to assure a smooth transition to the major new standard.

FASB issued Accounting Standards Update No. 2019-01 to address small changes to Accounting Standards Codification Topic 842 on leases, which brings virtually all lease-related assets and liabilities on to corporate balance sheets this year. ASU 842 took effect for calendar-year public companies on Jan. 1, 2019, so they will begin reflecting the new guidance in their first-quarter filings.

ASU 2019-01 makes changes to ASU 842 to address three separate issues that have come to the board’s attention as it answers questions from companies preparing to implement the new rules. One issue focuses on determining the fair value of underlying assets by lessors when they are not manufacturers or dealers.

Historic lease accounting guidance provided an exception for lessors that are are not manufacturers or dealers from determining the fair value of leased property, permitting them to recognize those assets at cost, net of any volume, or trade discounts that may apply. ASU 842 did not provide this exception, prompting affected lessors to appeal to the board to reinstate the exception. ASU 2019-01 reinstates the exception, although it indicates fair value under ASC 820 will apply if any significant lapse of time has occurred between acquiring the asset and commencing the lease.

A second issue addressed in the codification update focuses on presentation in the cash flow statement for sales-type and direct financing leases. The new guidance says lessors that are also depository or lending entities under the scope of ASC 942 on financial services should present all principal payments received under leases within investing activities in the cash flow statement.

Finally, the new guidance addresses transition disclosures under ASC 250, which focuses on accounting changes and error corrections. The board says the guidance clarifies its original intent to explicitly exempt both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which the entity adopts the new lease standard. FASB says companies should adopt the updates in tandem with the adoption of ASC 842.