Episode 31: Leasing - remeasurement, modifications and terminations

Overview

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?

| Duration 22:24

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Show Notes

In this episode we continue our discussion of the new leases standard. In Episode 28 of our podcast series, we talked about some day one issues in implementing the new leases standard including the identification of a lease, a day one loss that a lessor can incur in certain transactions, and also some transition issues. In this episode, we focus on 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.

Under the new model, a lessee may need to reassess lease classification and remeasure the lease if there is a lessee controlled triggering event or a contractual triggering event that changes the exercise of an extension or termination option. There can be several lessee controlled and contractual triggering events that could cause a reassessment of lease classification and remeasurement by a lessee. This new remeasurement guidance does not apply to lessors. It applies only to lessees.

Additionally, leases can be modified based on the needs of the lessee as well as market conditions. The lessee and lessor will need to determine whether the modification should be accounted for as a new lease, or whether the modification should be accounted for as a change in the existing lease.

Sometimes, a lease is terminated completely. The accounting depends on whether the lease is terminated early or at the end of the lease term as anticipated.