Accounting for Leases

On February 25, 2016, FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). The objective of this ASU is to increase transparency and comparability in financial reporting by requiring balance sheet recognition of leases and note disclosure of certain information about lease arrangements. This ASU codifies FASB Accounting Standards Codification (ASC) 842, Leases, and makes conforming amendments to other FASB ASC topics. FASB ASU No. 2016-02 was subsequently amended by the following updates:

• ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842
• ASU No. 2018-10, Codification Improvements to Topic 842, Leases
• ASU No. 2018-11, Leases (Topic 842): Targeted Improvements
• ASU No. 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors
• ASU No. 2019-01, Leases (Topic 842): Codification Improvements
• ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates
• ASU No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842) Effective Dates for Certain Entities
• ASU No. 2021-05, Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments

FASB ASC 842 is applicable to any entity that enters into a lease and applies to all leases and subleases of property, plant, and equipment; it specifically does not apply to the following nondepreciable assets accounted for under other FASB ASC topics:

a.   Leases of intangible assets

b.   Leases to explore for or use nonregenerative resources such as minerals, oil, and natural gas

c.   Leases of biological assets, such as timber

d.   Leases of inventory

e.   Leases of assets under construction

In June 2020, FASB issued ASU No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842) Effective Dates for Certain Entities, which, among other provisions, deferred the effective dates for applying ASC 842 for certain not-for-profit entities that have not yet issued financial statements or made financial statements available for issuance as of June 3, 2020. The ASU also deferred the effective date for applying ASC 842 by one year for entities within the “all other entities” category. ASU No. 2020-05 also deferred the effective dates for applying ASC 606 for certain entities.

IASB Leases Standard

On January 12, 2016, the International Accounting Standards Board issued its much-anticipated leases standard, IFRS 16. The standard will require all leases to be reported on a company’s balance sheets as assets and liabilities.

IFRS 16 began as a convergence project with the FASB. However, the boards were unable to reach consensus on some key issues, and some significant differences between IFRS 16 and the new FASB standard remain.

IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019, with earlier application permitted (as long as IFRS 15 is also applied).

For more information about the IFRS 16, see the IASB’s webpage at iasb.org.