From a quantitative perspective, ASC 842 requires lessors provide the following disclosures: The theme to the quantitative disclosures is making sure that the entity provides the users with more transparency into the amount of income earned by the lessor, as well as the type of income (e.g., profit recognized at commencement, interest income, lease income, and variable lease income). However, the only change from ASC 840 is that a lessee will reconcile the undiscounted cash payments to the operating lease liability recognized in the statement of financial position. The Basic 842Lease.com Excel Spreadsheet and the powerful VBA based 842WARE for Lessees©. This lack of clarity, and quite frankly lack of insight, into an entity’s lease commitments is one of the main reasons the FASB decided to revise the accounting and reporting for leases. It can be used as a standalone ASC 842 Lease solution, or in conjunction with Leasing software. Financial statement preparers and their auditors will need to evaluate at what level of depth and disaggregation those disclosures will need to be, remembering that the FASB expects disclosures should reflect the significance of an entity’s leasing arrangements. For operating leases, lease income relating to lease payments. The disclosure objective previously discussed applies to both lessees and lessors. When adopting the new revenue recognition standard, many companies didn’t consider disclosures until late in the implementation process. Lease income relating to variable lease payments not included in the measurement of the lease receivable. Delay in Implementation of New Lease Standard? To be honest, disclosure requirements under current U.S. GAAP for leases (ASC 840) aren’t terribly insightful, especially for lessees with mainly operating leases, which aren’t recorded on the balance sheet. Unlike IFRS ( as further discussed below), the FASB set out explicit qualitative disclosure requirements in ASC 842 because it viewed those disclosures as essential to allowing financial statement users to understand a lessee’s leasing activities. A lessor shall provide disclosures required by Topic 360 on property, plant, and equipment separately for underlying assets under operating leases from owned assets. In the interest of time, we’ll only focus on the unique disclosure requirements for lessors. 151 Le Gordon Drive, Suite 101 For more about the new leasing standard, make sure to check out our blog series here or this post curating some of our favorite resources on the new standards! Interest income either in aggregate or separated by components of the net investment in the lease. Lease Accounting Example – ASC 842 Accounting Lease Standards and PeopleSoft Lease Administration ; November 14, 2017 ; Steven Brenner ; Blog; Deep Dive Blog Series: Part 2 of 5. The related ROU assets must be presented separately from other assets, as well as from each other. The new FASB ASU (Accounting Standards Update) is Leases (Topic 842) . This standard is going to require numerous new disclosures, both quantitative and qualitative. .10 APRIL 2019 WWW .BDO .COM FASB Topic 842: Presentation and Disclosure ... DISCLOSURE OBJECTIVE 1 ASC 842-20-50-2 and ASC 842-30-50-2 2 ASU 2016-02 Background Information and Basis for Conclusions, paragraph BC 276 3 ASC 842-30-50-5 FASB Accounting Standards Codification (ASC) 842-20-50-1 and 842-30-50-1 provide that “the objective of the disclosure … The standard will require entities to classify leases as either a finance, or operating lease based upon the contractual terms. ASC Topic 842 (ASU 2016-02, ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20, ASU 2019-01, ASU 2019-10, ASU 2020-02, ASU 2020-05) All companies with leases in the scope of ASC 842 Finance lease cost, segregated between the amortization of the right-of use assets and interest on the lease liabilities. Currently, the only disclosures you’re likely to see is in the disclosure for off-balance sheet arrangements and contractual obligations within Management’s Discussion and Analysis, which is unaudited, or within the footnotes where the future minimum rental payments are disclosed. Other differences between the previous leases guidance and Topic 842 are described below. ASC 842 requires the same disclosure for operating lease liabilities. FX + 1 (804) 897-0609, This post discusses the changes resulting from AS 2501 (Revised) Auditing Accounting Estimates, Including Fair Value Measurements and reminders from the PCAOB. • Date of initial application — The first day an entity applies the transition provisions of ASC 842 to its A lessor shall present any profit or loss on the lease recognized at the commencement date in a manner that best reflects the lessor’s business model(s). The pattern of expense recognition in the income statement will depend on a lease’s classification. The quantitative disclosure requirements under IFRS 16 are similar to, but not identical to ASC 842. During deliberation… The information contained within this article is provided for informational purposes only and is current as of the date published. Entities will need to apply judgement. ... read more. ASC 842 requires an entity to consider the level of detail necessary to satisfy the disclosure objective. More Insights from Brett Sinsabaugh, CPA, CCA. For some great illustrative examples of the new disclosure requirements under ASC 842, check out KPMG's Leases Handbook. A lessor shall consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the various requirements. Analysts estimate there are approximately $3 trillion in off-balance sheet lease commitments. This Heads Up outlines the ASC 842 disclosure requirements, elaborates on some of those requirements, and provides examples of related SEC comments issued to registrants in 2019. Innsbrook Corporate Center Lease Presentation and Disclosure. Leases (Topic 842) No. In this article, we’ll provide an overview of the new disclosures and also discuss the necessary supporting data that will need to be accumulated for your company’s annual disclosures. Both auditors and accountants would do well to keep disclosures at the front of their mind. Any other means by which the lessor reduces its residual asset risk (for example, buyback agreements or variable lease payments for use in excess of specified limits). Information about how a lessor manages residual value risk of its leased assets, including: Carrying amount of residual assets covered by residual value guarantees, Risk management strategy for residual assets, Any other means used by the lessor to reduce its residual asset risk. Allowed tags:
Add a new comment: This blog shares our insights and conversations about accounting, auditing, and training matters. If a lessor uses leases for the purposes of providing financing, the lessor shall present the profit or loss in a single line item. Lessees and lessors will be required to disclose both quantitative and qualitative information regarding its leases and the significant judgments made when applying ASC 842, as well as the amounts recognized in the financial statements related to leases. The project has finally been completed with the FASB and IASB issuing separate standards on February 25, 2016 and January 13, 2016, respectively . In February 2016, the Financial Accounting Standards Board issued new guidance over leases, Accounting Standards Update 2016-02: Leases (Topic 842), (“ASC 842”). Posted on Apr 19, 2017 by PwC’s Leases guide is a comprehensive resource for lessees and lessors to account for leases under the new leases standard (ASC 842). For more information regarding lease accounting and ASC 842, please contact your Keiter representative or Email | Call 804.747.0000, Appropriate Discount Rates for Leases Under ASC 842. A lessor shall disclose lease income recognized in each annual and interim reporting period, in a tabular format, to include the following: For sales-type leases and direct financing leases: Profit or loss recognized at the commencement date (disclosed on a gross basis or a net basis consistent). In 2019, the latest FASB standard on lease accounting, ASC 842 (ASU 2018-11), went into effect for most public companies. Once adopted, ASC 842 will add significant disclosure requirements for both lessees and lessors. The disclosure requirement under ASC 842 includes a general description of the lease, information about any significant assumptions or judgements, information about the basis, terms and conditions on which the payments are made, a narrative disclosure about the bargain purchase or termination option, and any restrictions imposed by leases. Disclose maturity analysis of undiscounted lease liabilities (i.e., 5-year table) separately for finance leases and operating leases Provide reconciliation of undiscounted cash flows to the finance lease liabilities and operating lease liabilities recognized in the statement of financial position By Brett Sinsabaugh, Business Assurance and Advisory Services Senior Manager. Lease liabilities follow the same separation requirements. Lease assets shall be subject to the same considerations as other assets in classification as current or noncurrent assets in a classified balance sheet. The new disclosure requirements are noted in bold above. 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