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Leases: What You Need to Know Now

By Matthew Jensen, on October 19th, 2023

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 year one accounting under the new standard, it is important to remember that there will be ongoing lease accounting considerations.

For year two and beyond under the new accounting standard, 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 lease 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.

Accounting For Leases Under ASC 842

Appropriately accounting for leases under ASC 842 is a continuing and evolving journey. If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to the Bonadio Group or a member of your Bonadio Client Service Team 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.

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