- Identify all leases
Identification of all leases is crucial for compliance, and will not apply just for leases entered after the implementation of the new standards. All leases currently in place should be identified and assessed under the new guidance.
- Begin gathering your embedded leases:
Not all leases are obvious. Some may be embedded into service contracts or other agreements. Be sure to identify embedded leases. Examples of embedded leases include:
- Equipment leases may be embedded in security contracts, such as scanners, monitors, and other equipment.
- Contracts for logistics and transportation may identify and assign specific vehicles to be used solely for your organization.
- Prepare for the calculations and disclosures needed under ASC 842:
The new disclosure requirements are significantly more robust than those required under prior guidelines. Beyond calculating the initial lease liability and right-of-use asset discussed above, you may also need to calculate implicit discount rates, weighted average lease terms, and amortization schedules.
The disclosure requirements for FASB 842 are both qualitative and quantitative. A few of the specific disclosures required are:
- Discussions covering the lease arrangements
- Descriptions of significant judgments made
- Details about the lease costs reported on the income statement
- Weighted-average analysis of discounts and remaining lease terms
Interested in knowing more about ASC 842? Contact us at Barbacane Thornton & Company, LLP. We have a team of professionals excited to be your auditors and trusted advisors.