This Heads Up addresses topics on the definition of a lease, lessee and lessor accounting, lease classification, presentation and disclosure, and transition.
It’s been over a year since the FASB issued ASU 2016-02, its new standard on accounting for leases (codified in ASC 842). Although the standard will not be effective until 2019, entities have already begun raising implementation issues. In addition, many questions have arisen about the standard’s fundamental concepts, including the definition of a lease, lease payments, and presentation and disclosure.
In this Heads Up, we share our perspectives on such topics and address FAQs, such as the ones mentioned below, about the standard.
We have also included several Driving Discussions to highlight certain key issues related to the new guidance, some of which remain unresolved as of the issuance date of this publication.
- Can a lessee use an appropriate capitalization threshold when evaluating the requirement to recognize, on the balance sheet, leases that otherwise require recognition under the ASU?
- Does an entity need to evaluate a service arrangement that involves the use of PP&E to determine whether the arrangement contains a lease?
- Should an entity consider tax attributes associated with the ownership of the underlying asset when evaluating whether a customer has the right to obtain substantially all of the economic benefits from the use of the asset?
- How should a lessee include the effects of a lease that is part of an asset group when testing the asset group for impairment in accordance with ASC 360?
- Should a lessor recognize a loss at lease commencement when its initial measurement of the net investment in a sales-type or direct financing lease is less than the carrying value of the underlying asset?
- Can a lessor depart from straight-line income recognition for operating leases when lease payments are uneven or stepped to reflect anticipated market rentals or market conditions?
For a comprehensive overview of ASU 2016-02, see Deloitte’s March 1, 2016, Heads Up.
View the rest of the Heads Up.