Accounting for changes to leases under ASC 842

In 2016, the Financial Accounting Standards Board (FASB) issued its long-awaited revision to lease accounting, Accounting Standards Update (ASU) 2016-02, Leases (codified in FASB Accounting Standards Codification [FASB ASC] 842, Leases). There are elements of the new standard that could impact almost all entities to some extent, although lessees likely will see the most significant changes. These changes are wide-ranging and cover several CPEA reports in this series.

In this report we focus on common scenarios related to reassessments, remeasurements, and modifications of existing leases.

• Initial amounts must be reassessed when any of five events occur as outlined in the standard, which could result in the amount recorded as a right of use asset and lease liability being remeasured.

• Modifications to existing leases occur frequently and the accounting can differ if the modification must be accounted for as a separate contract or if it is accounted for as a modification of the existing contract.

Those topics are discussed in detail with both illustrative examples as well as the journal entries which would be required in each scenario.