FASB ASC 842 lease capitalization policy

With broader understanding and implementation of FASB Accounting Standards Codification (FASB ASC) 842, Leases, by private companies, questions are becoming more frequent about the use of a lease capitalization policy. At the April 21, 2022, Private Company Council (PCC) meeting, lease capitalization policies were cited by the FASB chair as something where private companies needed focus. However, a PCC preparer cautioned that a lease capitalization policy requires some substantiation and analysis as it lacks authoritative basis in the FASB ASC. Capitalization policies historically have been used by entities as an accounting convention to simplify recordkeeping for property, plant & equipment (PP&E). However, they also lack authoritative basis in the FASB ASC. Lease capitalization policies can be a way to mitigate cost burdens but are nuanced and should be implemented thoughtfully and carefully. In this report, we detail the considerations for selection of a capitalization policy for FASB ASC 842.