United States

Leases: New accounting requirements for lessees

WHITE PAPER

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Our white paper, Leases: New accounting requirements for lessees, explains and illustrates the new lease guidance applicable to lessees in Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), which was issued by the Financial Accounting Standards Board (FASB) in the following three parts: (a) Section A, “Leases: Amendments to the FASB Accounting Standards Codification®,” (b) Section B, “Conforming Amendments Related to Leases: Amendments to the FASB Accounting Standards Codification®,” and (c) Section C, “Background Information and Basis for Conclusions.” The new lease guidance in the ASU replaces legacy U.S. generally accepted accounting principles (GAAP) applicable to the accounting for leases.    

The most significant aspect of the new lease guidance requires lessees to recognize right-of-use assets and lease liabilities for all leases other than those that meet the definition of short-term leases. This change will result in lessees recognizing right-of-use assets and lease liabilities for most leases currently accounted for as operating leases under legacy U.S. GAAP. Our white paper explains how those assets and liabilities are identified, measured and recognized under the new lease guidance as a lessee undertakes the following activities in accounting for its leases:

In addition, our white paper explains the accounting for sale-leaseback transactions, the effective date of the new lease guidance and how to transition from legacy U.S. GAAP to the new lease guidance. Numerous examples are included in the white paper, including detailed numerical examples illustrating the finance and operating lease accounting models, the sale-leaseback transaction accounting model and the modified retrospective transition method when the practical expedients are elected.

Even though there are significantly deferred mandatory effective dates for the new lease guidance, lessees should not delay the process of understanding and analyzing the financial reporting consequences of the new guidance. Our white paper provides lessees with the information they need to start that process.

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