Lease accounting

Adopting the new FASB lease accounting standard (ASC 842)

The FASB’s lease accounting standard change, ASU 2016-02, Leases (Topic 842), presents dramatic changes to the balance sheets of lessees. Among many of the changes, lessor accounting is updated to align with certain changes in the lessee model and the new revenue recognition standard.

Read executive level insights into the new lease accounting rules through our In the loop series, and gain a technical perspective into the leasing standard’s requirements with our In depth publication, which includes industry-focused supplements. A comprehensive accounting and reporting guide on lease accounting to help you with your company’s implementation is also available.

Quick update on what is changing

  • The FASB and IASB each issued new lease guidance in early 2016.
  • The boards differ in their approaches to lessee accounting.
  • Under the FASB approach, lessees will need to recognize a right-of-use asset and a lease liability for virtually all of their leases. For income statement purposes, the FASB retained a dual approach, requiring leases to be classified as either operating or financing, similar to today.
  • The IASB’s approach presents virtually all leases in a manner similar to today’s financing leases.
  • The boards are more closely aligned on the lessor accounting, which is substantially equivalent to current US GAAP and IFRS.
  • The guidance significantly changes lessee accounting for leases and impacts financial statement presentation and financial metrics, including many that relate to debt covenants, key performance indicators, and perhaps compensation arrangements.
  • The FASB’s standard is effective in 2019 for most calendar year-end public business entities. Other entities have an additional year to adopt the new guidance. Early adoption is permitted.
  • The FASB’s standard is required to be adopted using a modified retrospective transition approach, which requires application of the new guidance at the beginning of the earliest comparative period presented in the year of adoption.
  • In January 2018, the FASB released a proposal to add two practical expedients. The proposed changes would allow entities to elect a simplified transition approach, and provide lessors with an option related to how lease and other related revenues are presented and disclosed.

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Leasing - remeasurement, modifications and terminations

In this podcast hear PwC’s Jim Gazley, Ashima Jain and Shannon Detling discuss some of the “day two” issues that lessees and lessors will face in accounting for certain events or changes in circumstances after a lease commences - such as remeasurements, modifications, and terminations. The first podcast, in this leasing series, answered “day 1” big picture questions; in this “day 2” episode, we take a closer look at some more complex questions such as:

  • What is a remeasurement and why would a lessee need to remeasure a lease?
  • How should lessees and lessors account for modifications to leases?
  • How do lessees and lessors account for lease terminations?


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How an equipment lease management solution can provide benefits beyond compliance

Historically, equipment leases have lacked centralized processes and controls with most companies using manual tracking methods, resulting in limited visibility across the lease portfolio. The new leasing standards pose a particularly difficult challenge for equipment leases, which are often smaller in value but much more numerous and complex than property leases.

Compliance with the new standards will be more challenging without a complete understanding of an organization’s equipment-leasing portfolio. A robust equipment lease management solution not only helps companies comply with the new standards, but can also provide increased transparency and efficiencies across the organization.

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Lease accounting “In depth” industry supplements

These industry-specific supplements complement PwC’s In depth overview of the new lease accounting standard (ASC 842). They provide examples and further insights into ways entities within the industry are likely to be affected.

See all lease accounting industry supplements

Contact us

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Strategic Thought Leader, US National Professional Services Group

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IFRS & US Standard Setting Leader, National Professional Services Group

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Partner, Deals, Accounting Advisory Services
Tel: +1 (312) 298 2425

Chad Kokenge
Partner, PwC Deals
Tel: +1 (973) 236 7609

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