A guide to lessee accounting under ASC 842

Jul 31, 2022
Lease accounting Financial reporting Technical accounting Audit

A guide to lessee accounting under ASC 842 assists middle-market lessees in applying the leases guidance in Topic 842, Leases, of the Financial Accounting Standards Board’s Accounting Standards Codification (ASC). The most significant change for lessees under ASC 842 is the recognition of ROU assets and lease liabilities by lessees for most leases, which we discuss and illustrate in detail in our guide.

Our comprehensive guide includes in-depth discussion and numerous examples on:

  • The scope of ASC 842 and the definition of a lease
  • The steps lessees should take in identifying the units of account present in a contract that includes a lease and allocating the contract consideration to those units of account
  • The key inputs used by lessees in classifying and accounting for a lease, including the commencement date, the discount rate, the lease term and lease payments
  • The lease classification criteria used by lessees to classify a lease as an operating lease or finance lease
  • The initial and subsequent accounting by lessees for operating leases and finance leases, including specific issues such as evaluating ROU assets for impairment, applying ASC 842 to leases denominated in a foreign currency and recognizing leases acquired in business combinations and asset acquisitions
  • The seller-lessee’s evaluation of and accounting for sale-leaseback transactions
  • The lessee’s presentation of leases on its balance sheet, income statement and cash flows statement and the disclosures required of lessees under ASC 842
  • The effective date of ASC 842 and the transition guidance that should be applied in the initial implementation of ASC 842

We also shine spotlights throughout our guide on a variety of changes ASC 842 has on lessee accounting. In addition, we provide: (a) an easy-to-use table that summarizes the reassessment and remeasurement events that require lessees to reassess or remeasure a particular aspect of ASC 842 (e.g., reassess lease classification or remeasure lease payments) and (b) a lessee disclosure checklist.

The July 2022 edition of this guide has been updated to incorporate guidance from the following Accounting Standards Updates (ASUs) issued by the FASB:

  • ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (see Section of the guide)
  • ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities (see Section 10.1 of the guide)
  • ASU 2021-09, Leases (Topic 842): Discount Rate for Lessees That Are Not Public Business Entities (see Section 5.2 of the guide)

This edition also has been updated to reflect the ASC 842 guidance in the FASB staff Q&A, Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic (see Section, and for certain practice issues related to the application of ASC 842.

Our guide is a valuable tool to lessees as they implement ASC 842 and account for their leases on a going-forward basis. Click here for information about the ASC 842 accounting standards implementation services provided by RSM.

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ASC 842 represents a significant shift in lease accounting standards and many technology solutions can ease the transition and help organizations remain compliant.

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