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The Financial Accounting Standards Board (FASB has issued Accounting Standards Update (ASU) 2023-01 Leases (Topic 842): Common Control ArrangementsThe ASU only applies to institutions without any public or conduit debt.


The ASU addresses two issues relating to leases under common control: classification and accounting for the leases on the basis of legally enforceable terms and conditions, and the amortization period for leasehold improvements. 


On the first issue, if an independent institution is not a conduit debt obligor, it can use the practical expedient of using the written terms and conditions of the common control arrangement. Otherwise, it should apply Topic 842 for arrangements between related parties not under common control.


On the second issue, if the institution is (1) a lessee that owns leasehold improvements; (2) the lessor is a member of the same common control group; and (3) the lessor obtained the right of control via a lease with an entity not within the same common control group, the amortization period for the leasehold improvements is limited to the lease term between the lessor and the other entity.


The ASU is effective for fiscal years beginning after December 15, 2023 (FY25 for most independent institutions). Early adoption is permitted. 


Chris Leach

Accounting Policy Analyst


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