FASB ASC 842, Leases, otherwise known as the new lease standard, requires many changes in how we account for leases. The biggest impacts of the new standard will be (a) felt on the balance sheet as substantially all operating leases will now be recognized as right-of-use assets and lease liabilities and  (b) reflected by new qualitative and quantitative disclosures.

Qualitative disclosures. 

These are disclosures that provide a general description of the entity’s ongoing lease arrangements, including defining new terminology used by the new lease standard. Other items disclosed here are:

• Discussion of any provisions to extend or terminate leases, including whether these options are reflected within the lease assets and liabilities recognized on the balance sheet.
• Description of any restrictions or covenants imposed by the leases.
• Information about significant leases that commenced after the balance sheet date.
• Significant assumptions and judgments made in determining the lease assets and liabilities recognized, including:
  • The determination of whether a contract contains a lease.
  • The determination of the discount rate used to measure the lease.

Quantitative disclosures. 

The following amounts should be disclosed separately for Finance and Operating Leases:

• Lease costs, segregated between those arising from lease asset amortization and those pertaining to interest on lease liabilities.
• Non-cash investing/financing activities related to leases.
• Cash paid for amounts included in the measurement of lease liabilities.
• Weighted-average remaining lease term.
• Weighted-average discount rate.
• Schedule of future finance and operating lease payments that include:
  • The undiscounted cash flows on an annual basis for a minimum of each of the next 5 years.
  • The total undiscounted cash flows for all years thereafter.
  • A reconciliation of the undiscounted cash flows to the lease liabilities recognized on the balance sheet.

Disclosures in the year of adoption.

• The method of implementation used.
• A description of the prior-period information that has been retrospectively adjusted, if any.
• The cumulative effect of the change on equity as of the beginning of the earliest period presented.
• Any practical expedients used in adopting the standard.

 

The new lease standard is effective for private companies for annual reporting periods beginning after December 15, 2020 (2021 calendar year).

 

Please contact a member of your Corrigan Krause advisor team, or email info@corrigankrause.com for further discussion.