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Leases: Overview of ASC 842

Dec 19, 2019
Audit Lease accounting Financial reporting

Leases: Overview of ASC 842 provides a high-level summary of certain guidance in Topic 842, Leases, of the Leases: Financial Accounting Standards Board’s Accounting Standards Codification (ASC). More specifically, our overview highlights the following guidance in ASC 842 applicable to both lessees and lessors:

  • The definition of a lease
  • The key inputs used in accounting for leases, including the lease term, lease payments and initial direct costs
  • The classification of a lease as an operating or finance lease by lessees or an operating, direct-finance or sales-type lease by lessors
  • The accounting for leases involving real estate, lease modifications, related-party leases and sale-leaseback transactions

We also highlight certain guidance in ASC 842 that is applicable to lessees, including the following:

  • Determining the units of account present in a contract that includes a lease
  • Determining the discount rate the lessee should use when classifying and accounting for a lease
  • Initially and subsequently accounting for a lessee’s leases
  • Presenting leases on the lessee’s balance sheet, income statement and cash flows statement

Highlights provided in our overview related to guidance in ASC 842 applicable to lessors are focused on the following topics (as well as others):

  • Leveraged leases
  • Separation of lease and nonlease components
  • Sales and other similar taxes
  • Collectibility
  • Variable lease payments based on other than an index or rate

Our overview also discusses the effective date for ASC 842 and the transition methods that should be used in its initial application.

For additional information about lessee accounting, refer to our publication, A guide to lessee accounting under ASC 842, which includes in-depth discussion and numerous detailed examples on all facets of a lessee’s accounting for its leases, from determining whether a contract is in the scope of ASC 842 to initially and subsequently accounting for leases to presenting and disclosing leases in the financial statements. Click here for information about the ASC 842 accounting standards implementation services provided by RSM.

RSM contributors

  • Richard Stuart

Do you know how to evaluate ASC 842 technology solutions?

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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