Demystifying embedded leases: Top five insights, key indicators and accounting lessons learned

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Observations from the front lines

Background

It has been quite some time since public companies first adopted ASC 842, and embedded leases continue to be a topic of discussion. Companies continue to face complexities with identifying, recognizing and accounting for embedded leases. To provide some guidance, we’ve summarized top insights into lessons learned regarding embedded leases—one of the most challenging details of ASC 842.

The devil is in the details. Determining whether a contract provides the customer the right to control identified assets requires a careful analysis of the facts and circumstances of the arrangement and the nature of the asset(s). The following indicators may be able to assist companies in evaluating the potential for embedded leases in their arrangements.

Key takeaway

Identifying embedded leases requires judgement and a deep understanding of the business. Companies may need to assess for embedded leases each time contracts are entered into or modified to help determine necessary disclosures. 

How PwC can help

Our Capital Markets and Accounting Advisory Service (CMAAS) professionals have experience helping our clients navigate the key areas of judgment related to embedded leases. 

Further, our capabilities extend into the use of digital tools to further assess a population for risks of embedded leases. Contact us to learn how we can assist with your leasing adoption challenges.

“Observations from the front lines” provides PwC’s insight on current economic issues, our perspective regarding the financial reporting complexities, and what companies should be thinking about to effectively address those issues. For more information, visit www.pwc.com/us/cmaas.

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Contact us

Latina Fauconier

Managing Director, PwC Deals Practice, PwC US

Peter Feigenbaum

Director, PwC Deals Practice, PwC US

Brandon Campbell Jr.

Managing Director, PwC Deals Practice, PwC US

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