There are now over 12,000 pages of documentation about the new ASC 842 and IFRS 16 lease accounting standards. In fact, there is so much documentation available that the choice of deciding which ones to read can be overwhelming. And with the deadlines fast approaching, companies will need to invest their time only reading the best. To narrow down what’s worth reading, we asked our technical accounting experts at LeaseAccelerator which documents they find most useful on various aspects of the standard.
We’ve compiled their answers into our Top 10 Must Reads List for Lease Accounting. The list includes a comprehensive guide as well as shorter articles focused on specific topics ranging from tax and transition to rates and remeasurements. Whether you are knee-deep in the middle of implementation or just now embarking on your lease accounting journey, we hope this will help you prioritize which documents to read first.
1. Best Comprehensive Guide
This comprehensive guide published by Deloitte offers you everything need to know about the new ASC 842 lease accounting standard, from identifying a lease and the components of a contract to calculating lease term and payments. Download to read “A Roadmap to Applying the New Leasing Standard.”
2. Electing Practical Expedients
Among the many policy decisions companies will have to make is selecting practical expedients. Each expedient has pros and cons, and some are more complex than others. Recently, FASB added two new practical expedients concerning the comparative period and land easements that companies will now also need to consider. Watch the “Leasing – Practical Expedients” video to learn more.
3. Accounting for Real Estate Leases
At most companies, the assets with the highest value in the lease portfolio are real estate properties. In addition to having the greatest impact on the balance sheet, real estate assets also present unique challenges. Read the “Impact of lease accounting changes to corporate real estate” for some examples on transitioning real estate leases.
4. Identifying Embedded Leases
The new standard covers leases that may not even have the word “lease” in the title. These embedded leases can hide in service and outsourcing agreements. Read “Are leases embedded in your contracts” to learn where you can find existing embedded leases as well as how to identify new embedded leases as they’re signed.
5. Determining the Discount Rate
One of the more complex parts of the new standard is determining discount rate. Companies are required to use either the discount rate implicit in the lease or the incremental borrowing rate (IBR) when calculating the liability. However, the discount rate is rarely specified in the contract, and there is a lot of confusion around the IBR. Read “Leases Discount rates” to learn what the IBR is and how to calculate it.
6. Accounting for Variable Lease Payments
Accounting for lease payments is another complex aspect of the new standard. Factors like whether the payment is fixed or variable, whether it’s tied to an index or rate, or the reason a payment changed can all lead to different accounting treatment. To learn about the various requirements for lease payments, check out “Lease payments: What’s included in the lease liability.”
7. Remeasurement, Reassessment, Modifications
Sometimes the initial measurement of a lease asset and liability don’t cut it under the new standard. Certain situations, like payment changes or triggering events, can require companies to reassess and remeasure their asset and liability. Some decisions may even require a new contract or modification to the existing contract. To learn more about these scenarios, read “Leasing – remeasurement, modifications, and terminations.”
8. Preparing the Audit Committee
Audit committees will have a major part to play in implementing the new lease accounting standard. They are responsible for overseeing the project and ensuring the company will achieve compliance. To be successful, audit committees will need to keep a few key issues in mind. Read more in “Preparing for the Leases Accounting Standard: A Tool for Audit Committees.”
9. Tax Impacts
The new lease accounting standard will impact a number of organizations throughout the company, including tax. The tax group will need to prepare for and monitor the potential impacts to deferred taxes, real estate taxes, interest expense, and more. For a complete list of how tax will be impacted, read “6 Tax issues CFOs should understand about FASB’s new lease accounting standard.”
10. Separating Lease and Non-Lease Components
Lease and non-lease components, and the accompanying practical expedient, have generated a lot of debate. There are a number of pros and cons to the expedient. In addition, companies that decide to separate components will need to learn how to identify and value each component based on the standalone observable price (SOP). For more information on the practical expedient, components, and SOP, read “Separation Anxiety: Lease and Non-Lease Components.”