Leases: Ongoing Accounting Considerations

Leases (ASC 842) was applicable to private companies and private not-for-profit entities in fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. While many companies have completed their initial accounting under the new standard, it is important to remember that there are ongoing lease accounting considerations.

In the years after initial adoption, companies will still need to make a number of significant judgments for both their existing and new leases. Analysis needs to be performed based upon the facts and circumstances surrounding lease agreements such as:

1. Lease terms, including consideration of renewal periods and early termination options.
2. Determination of finance versus operating leases for any new or modified leases.
3. Changes in lease payments used in calculating the original right-of-use asset and lease liability.
4. Determination of whether triggering events or modifications have occurred that warrant an adjustment to the right-of-use asset and lease liability previously recorded.
5. Impairment considerations related to the right-of-use assets recorded under the ASC 360 impairment model.
6. Adoption considerations relative to ASU 2023-01, Common Control Arrangements.
7. & More.

In addition, we have found that entities may face challenges in:

1. Ensuring that an entity has processes in place to evaluate new contracts for embedded leases.
2. Navigating continuing policy elections.
3. Interpreting and applying new ASUs related to the standard, such as ASU 2023-01, Common Control Arrangements.
4. Identifying the appropriate inputs requiring change when updating leases for reassessments and modifications.
5. Utilizing excel-based solutions to calculate and appropriately record a lease reassessment / modification.
6. Preparing the journal entries, presentation, and disclosure within the financial statements.

We Can Help

The Bonadio Group has a team of professionals that can assist in:

1. Working with you and your team throughout your organization to identify and review potential leases, as well as embedded leases.
2. Navigating continuing policy elections and interpreting/applying new ASUs.
3. Reviewing the facts and circumstances that may cause a reassessment or modification and applying the appropriate accounting model to each scenario.
4. Calculating the right-of-use asset and lease liability for both new and remeasured/modified leases.
5. Preparing the journal entries and ensuring adequate disclosures.
6. Converting lease calculations previously performed in excel into a more user-friendly software solution.

Appropriately accounting for leases under ASC 842 is a continuing and evolving journey. Contact us today to learn more about how we can assist you in continuing to navigate this new leasing standard in year two and beyond.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.