The new disclosure requirements are noted in bold above. Leases (Topic 842) No. Those disclosure requirements include: Many of these qualitative disclosure requirements are new (presented in bold above) and did not previously exist under ASC 840. Midlothian, Virginia 23114, PH + 1 (804) 897-0608 To achieve that objective, a lessor shall disclose qualitative and quantitative information about all of the following: The significant judgments made in applying the requirements in this Topic to those leases, The amounts recognized in the financial statements relating to those leases. However, the only change from ASC 840 is that a lessee will reconcile the undiscounted cash payments to the operating lease liability recognized in the statement of financial position. . Vicky Hale, CPA © 2020 GAAP Dynamics All Rights Reserved. Family, Executive & Entrepreneur Advisory Services, Assisted Living and Long-Term Care Facilities, Family, Executive & Entrepreneurial Advisory Services. Therefore, it should come as no surprise that ASC 842 requires both qualitative and quantitative disclosures for lessors as well. To address this complexity, the Financial Accounting Standards Board (FASB) has provided several practical expedients entities may use for the transition.Effective dates 1. A lessor shall disclose both of the following: Information about the nature of its leases, including: The basis and terms and conditions on which variable lease payments are determined, The existence and terms and conditions of options to extend or terminate the lease. By browsing our website, you agree to our use of cookies. Glossary of key terms • Commencement date of the lease (commencement date) — The date on which a lessor makes an underlying asset available for use by a lessee. For more about the new leasing standard, make sure to check out our blog series here or this post curating some of our favorite resources on the new standards! In this article, we’ll provide an overview of the new disclosures and also discuss the necessary supporting data that will need to be accumulated for your company’s annual disclosures. A lessor shall explain significant changes in the balance of its unguaranteed residual assets and deferred selling profit on direct financing leases. Lessor Disclosures. The standard will require entities to classify leases as either a finance, or operating lease based upon the contractual terms. Financial statement preparers and their auditors will need to evaluate at what level of depth and disaggregation those disclosures will need to be, remembering that the FASB expects disclosures should reflect the significance of an entity’s leasing arrangements. Currently, the only disclosures you’re likely to see is in the disclosure for off-balance sheet arrangements and contractual obligations within Management’s Discussion and Analysis, which is unaudited, or within the footnotes where the future minimum rental payments are disclosed. Interest income either in aggregate or separated by components of the net investment in the lease. The information below is presented to assist in the understanding of financial statement presentation and disclosure requirements for lessors. Lease income relating to variable lease payments not included in the measurement of the lease receivable. If a lessor uses leases for the purposes of providing financing, the lessor shall present the profit or loss in a single line item. ASC Topic 842 (ASU 2016-02, ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20, ASU 2019-01, ASU 2019-10, ASU 2020-02, ASU 2020-05) All companies with leases in the scope of ASC 842 ASC 842 requires the same disclosure for operating lease liabilities. It should not be overly detailed or granular, but neither should it be at so high a level that the information is not useful. 2018-11 July 2018 Targeted Improvements ... (for example, maintenance services or other activities that transfer a good or service to the customer other than the right to use the underlying asset) in a contract. He also provides audit and business assurance services to privately-held businesses to clients in the manufacturing, retail and distribution, and technology industries, as well as employee benefit plan audits and not-for-profit organizations. ASC 842 requires each type of lease—operating or finance—to be reported separately in the balance sheet. The disclosure objective previously discussed applies to both lessees and lessors. In order to ensure that all requirements have been met, entities … The standard will require entities to classify leases as either a finance, or operating lease based upon the contractual terms. A lessor shall provide disclosures required by Topic 360 on property, plant, and equipment separately for underlying assets under operating leases from owned assets. The new guidance could have broad implications for entities’ finances and operations. Posted on Apr 19, 2017 by Cost of goods sold is the carrying amount of the underlying asset at the commencement date minus the unguaranteed residual asset. An example of such a disclosure is as follows: In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). For public companies, the ASU is effective for fiscal This is important because a decline in market value of the asset could adversely affect the profitability of the lease. This lack of clarity, and quite frankly lack of insight, into an entity’s lease commitments is one of the main reasons the FASB decided to revise the accounting and reporting for leases. 842, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. A lessor shall present that maturity analysis separately from the maturity analysis required for sales-type leases and direct financing leases. The FASB expects that as an entity’s leasing activities become more significant, its disclosures should be more comprehensive. A lessor shall present lease assets (that is, the aggregate of the lessor’s net investment in sales-type leases and direct financing leases) separately from other assets in the statement of financial position. The pattern of expense recognition in the income statement will depend on a lease’s classification. PwC’s Leases guide is a comprehensive resource for lessees and lessors to account for leases under the new leases standard (ASC 842). Table of lease income received during each annual and interim reporting period, including specific disclosures for sales-type, direct finance, and operating leases. ASC 842 requires that lessors disclose the following qualitative data in addition to many of the disclosure requirements listed above (for a full list, refer to the standard): As you can see, the additional qualitative disclosures required of lessors highlight the need to provide the user of financial statements with more information regarding how the lessor is managing its risks. The carrying amounts of the components of the aggregate net investment in sales-type and direct financing leases, including lease receivables, unguaranteed residual assets, and deferred selling profit on direct financing leases. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org. Companies must apply these disclosure requirements when adopting the new credit losses standard. The new lease accounting standards are significantly changing the accounting for operating leases.In this blog, we will provide a comprehensive example of operating lease accounting under ASC 842. ... read more, In this post, we are highlighting the 2020 AICPA Conference on Current SEC and PCAOB Developments which, for the first time, was held virtually! Although we are CPAs and have made every effort to ensure the factual accuracy of the post as of the date it was published, we are not responsible for your ultimate compliance with accounting or auditing standards and you agree not to hold us responsible for such. Delay in Implementation of New Lease Standard? This standard is going to require numerous new disclosures, both quantitative and qualitative. Accounting | Tax | Audit – Keiter CPAs is a certified public accounting firm serving the audit, tax, accounting and consulting needs of businesses and their owners located in Richmond, Charlottesville, and across Virginia. .10 APRIL 2019 WWW .BDO .COM FASB Topic 842: Presentation and Disclosure ... DISCLOSURE OBJECTIVE 1 ASC 842-20-50-2 and ASC 842-30-50-2 2 ASU 2016-02 Background Information and Basis for Conclusions, paragraph BC 276 3 ASC 842-30-50-5 FASB Accounting Standards Codification (ASC) 842-20-50-1 and 842-30-50-1 provide that “the objective of the disclosure … • Date of initial application — The first day an entity applies the transition provisions of ASC 842 to its Other differences between the previous leases guidance and Topic 842 are described below. A lessor shall disclose in the notes, the components of its aggregate net investment in sales-type and direct financing leases (that is, the carrying amount of its lease receivables, its unguaranteed residual assets, and any deferred selling profit on direct financing leases). ASC 842 contains new and expanded lease disclosure requirements that are significantly more comprehensive and complex than before. A lessor shall present any profit or loss on the lease recognized at the commencement date in a manner that best reflects the lessor’s business model(s). The disclosure requirement under ASC 842 includes a general description of the lease, information about any significant assumptions or judgements, information about the basis, terms and conditions on which the payments are made, a narrative disclosure about the bargain purchase or termination option, and any restrictions imposed by leases. . ... read more. The new disclosure requirements are noted in bold above. Bottom line: don’t wait until the last minute to think about these increased disclosure requirements! The new FASB ASU (Accounting Standards Update) is Leases (Topic 842) . A lessor shall disclose a maturity analysis of its lease receivables, showing the undiscounted cash flows to be received on an annual basis for a minimum of each of the first five years and a total of the amounts for the remaining years. This inherent complexity makes the transition guidance equally complex. FASB ASC 842 increases disclosure and visibility into the leasing obligations of both public and private organizations. GAAP Dynamics is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. When to Implement ASC 842. ASC 842, Leases – Transition disclosures. Prior to ASC 842, most leases were not included on the balance sheet. More Insights from Brett Sinsabaugh, CPA, CCA. 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