FASB Topic 842 Lease Accounting – Presentation and Disclosure (2023)

FASB Topic 842 Lease Accounting – Presentation and Disclosure (1)

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In February 2016, the Financial Accounting Standards Board (“FASB” or “the Board”) released its long-awaited Leasing Standard in ASU 2016-02 (“ASC 842” or “the new Standard”) for lessees and lessors. Consistent with its rationale, a lessee will recognize a right-of-use asset (“ROU”) and associated lease liability on its balance sheet for all contracts longer than 12 months. The pattern of recognition of expenses in the income statement depends on the classification of the lease. To seeBDO KNOWS: FASB Topic 842, Leasesfor a pattern overview.

During the deliberations on the standard, many adopters indicated that the existing disclosure requirements do not provide sufficient information to understand a company's leasing activities. As a result, the new standard also introduces a general disclosure target and significantly improved presentation and disclosure requirements for leases.

Disclosures on leases in the financial statements

FASB Accounting Standards Codification (ASC) 842-20-50-1 and 842-30-50-1 states that “The purpose of disclosure requirements is to enable users of financial statements to assess the value, timing and uncertainty of cash flows evaluate arising from leases. The rule goes on to state that “a tenant [landlord] must consider the level of detail required to meet the disclosure objective and how much weight to place on each of the various requirements. A tenant [landlord] must summarize or break down information in such a way that useful information is not obscured by the inclusion of a multitude of irrelevant details or by aggregating items with different characteristics.”[1]

With that goal in mind, significant judgment is required to determine the level of disclosure required of an entity. However, as a guiding principle, the Basis for Conclusions states that "where leasing is an integral part of an entity's business, the disclosures would be more complete than for an entity whose leasing activities are less significant...".[2]For example, although the new standard does not provide for specific quantitative or qualitative disclosure requirements as required by ASC 606, such disclosure may be appropriate for companies for which leasing is an integral part of their business.

Entities are required to provide the appropriate disclosures for each annual reporting period for which a statement of comprehensive income (activity statement) is presented and in each year-end balance sheet. Entities do not need to repeat disclosures where the information is already presented in the financial statements under other accounting standards.

Although most of the disclosures required by ASC 842 relate only to an entity's financial statements, the new standard requires lessors to provide a table of rental income for each annual and interim period.[3]🇧🇷 Additionally, in the year of implementation, the Securities and Exchange Commission (SEC) requires that publicly traded companies include all required annual disclosures in all interim financial statements prepared up to the filing of the next annual financial statements, even if the disclosure requirements apply to annual periods only .

(Video) Video 11: Lessee Presentation and Disclosure

FASB Topic 842 Presentation of Income Statement


A lessee is required to present finance lease ROU assets separately from operating lease ROU assets and other assets, either on the balance sheet or in footnotes. In addition, lease liabilities from finance leases are to be presented separately from lease liabilities from operating leases and other liabilities. In addition, ROU assets are classified on the lessee's balance sheet as non-current, consistent with the manner in which other depreciable assets, such as B. property, plant and equipment. However, the related lease liabilities are subject to short-term and long-term presentation requirements on a classified balance sheet that are consistent with the manner in which other financial liabilities are presented.

If the lessee elects to present ROU assets and liabilities in different balance sheet items rather than separate line items, the lessee is prohibited from presenting ROU finance lease assets or finance lease liabilities in the same line item as ROU finance lease assets operating leases -Liabilities. It would also need to disclose which items on the balance sheet contain ROU assets and lease liabilities.

For finance leases, the lessee shall present the interest expense on the lease liability and the amortization of the ROU asset consistent with the manner in which the lessee presents other interest expense and depreciation or amortization expense in the income statement. For operating leases, the lessee must present both components together as lease expense within income from continuing operations, consistent with the presentation of other operating expenses. Lease expenses are classified as cost of sales; selling, general and administrative expenses; or other expenses, depending on the type of lease.

The new standard does not provide specific guidance on the presentation of variable lease payments (for finance or operating leases). Paragraph BC271 in the Basis for Conclusions in ASU 2016-02 states that the amount recognized in the income statement should be presented in income from continuing operations. We believe presentation as lease expense or interest expense may be appropriate depending on the lease type. This determination requires lessees to assess whether the payments are more like lease payments or interest payments.

The cash flow classification of payments related to finance leases will be consistent with the classification of payments related to other financial liabilities. Payments of principal should be presented as a financing activity, while payments of interest would normally result in the presentation of operating cash flow. Payments related to operating leases, leases where the lessee has applied short-term lease workarounds, and all variable lease payments for operating or finance leases are classified as operating cash outflows (unless the payment represents a cost of acquiring another asset the condition and location necessary for the intended use, in which case they should be classified as investment activities). In addition, the establishment of ROU assets and lease liabilities at the inception of a lease (or such change as a result of lease modifications or revaluation events) should be disclosed as non-cash financing activities and investments.


A lessor is required to present leased assets (ie the net investment in leases) arising from sale-type leases and direct finance leases separately from other assets on the balance sheet. Leased assets are financial assets that are subject to short-term and long-term reporting requirements on a classified balance sheet.

For operating leases, the leased assets and associated depreciation are presented in accordance with other accounting standards (e.g. ASC 360). Assets leased under an operating lease must be presented separately from the lessor's own assets maintained and used because they are subject to different risks. Any rent receivable, deferred rental income (ie resulting from the obligation to recognize rent on a straight-line basis) or expected direct costs would be subject to current and long-term reporting requirements.

Income from leases must be shown separately in the income statement or in the notes. If included in the footnotes, the landlord must also indicate which items include rental income. The revenue and cost of goods sold in connection with the lease profit or loss recognized at the beginning date shall be presented gross if the lessor uses leases as an alternative method of recovering the value of assets that would otherwise be sold present the profit or loss on a net basis (ie as a line item).

The new standard does not provide specific guidance on the presentation of variable lease payments received for direct financing or sales leases. We believe presentation as lease income or interest income may be appropriate depending on the lease type. In making this determination, landlords must assess whether the payments are more like rent or interest payments.

(Video) FASB Webinar - Topic 842 Leases - Friday March 5, 2021

Lessors are required to classify all lease payments as operating activities in the statement of cash flows.


As noted above, the purpose of the disclosure requirements in the new leases standard is to enable users of financial statements to evaluate the amount, timing and uncertainty of lease cash flows. To help companies achieve this goal, the leasing standard mandates quantitative and qualitative disclosures that are required of all companies.[4]

The following table summarizes the disclosure requirements of the leasing standard:

Summary of Required Disclosures[5]
Tenants - Annual DisclosuresLandlord - Annual Disclosures
Presentation of the financial position
ASC 842-20-45-1 and 45-3
  • Separate from each other and from other assets and liabilities, present or disclose in the notes:
    • Rights of use from finance leases
    • Operating Lease Use Rights
    • Finance lease liabilities
    • Liabilities from operating leases
  • Classify right-of-use assets and lease liabilities as current or non-current depending on whether non-financial assets and similar financial liabilities are classified
  • Indicate which items on the balance sheet contain right-of-use assets and lease liabilities
  • The renter is prohibited from presenting:
    • Right-of-use assets under finance leases in the same row as right-of-use assets under operating leases
    • Finance lease liabilities in the same line as operating lease liabilities

Type of sale and direct finance lease
  • Presentation of leased assets separately from other assets on the balance sheet
  • Classify leased assets as current or non-current depending on whether similar assets are classified

rental contract
  • Present the underlying assets subject to operating leases in accordance with other accounting standards

Presentation of the financial position
ASC 842-30-45-1 to 45-2 and 842-30-45-6
statement of comprehensive income
ASC 842-20-45-4
  • For finance leases, the interest expense on the lease liability and the depreciation of the right-of-use asset are presented consistent with the entity's presentation of other interest expense or depreciation of similar assets.
  • In the case of operating leases, the lease expenses are to be taken into account in the income from continuing operations

Type of sale and direct finance lease
  • Present rental income or disclose in notes.
  • Identify which items in the statement of comprehensive income include rental income
  • Present the lease profit or loss recognized at the inception date in a manner that best reflects the lessor's business model, for example:
    • Present the revenue and cost of goods sold related to leasing activities as separate items when the lessor uses leasing as an alternative means of realizing the value of assets that it would otherwise sell.
    • Present the gain or loss in a single line item if the lessor is using the lease for financing purposes
statement of comprehensive income
ASC 842-30-45-3 and 45-4
cash flow statement
ASC 842-20-45-5
  • Classify repayments of the main portion of the lease liability from finance leases within financing activities
  • Classify interest on the lease liability arising from finance leases according to the requirements for interest paid in ASC 230 on cash flows
  • Classify payments under operating leases within operating activities, except to the extent that those payments represent costs of bringing another asset into the condition and location necessary for its intended use, which is within of investment activity should be classified.
  • Classify variable lease payments and short-term lease payments not included in lease liabilities under operations
  • Classify cash receipts from leasing within operational activities[6]
cash flow statement
ASC 842-30-45-5 and 842-30-45-7
Qualitative information
ASC 842-20-50-3(a) and 50-3(b) and 842-20-50-4
  • Information about the nature of your leases, including
    • An overview of rental agreements
    • The basis and conditions on which variable lease payments are determined
    • Existence and Conditions of Extension or Termination Options. A lessee must provide explanations as to which options are recognized as part of its right-of-use assets and lease liabilities and which are not.
    • The existence and terms of lessee residual value guarantees.
    • Restrictions or clauses imposed by lease agreements, such as those relating to dividends or making additional financial commitments
    • Identify the sublease information contained in the content above.
  • Information about leases that have not yet begun but create significant rights and obligations for the lessee, including the type of involvement in the construction or design of the underlying asset.
  • Disclose leasing transactions between related parties
  • Information about the nature of your leases, including
    • An overview of rental agreements
    • The basis and conditions on which variable lease payments are determined
    • Existence and Conditions of Extension or Termination Options.
    • The existence and terms of options for a lessee to purchase the underlying asset.
  • Disclose leasing transactions between related parties
  • Information on how the lessor manages the risk associated with the residual value of its leased assets
    • Risk management strategy for residual assets
    • Book value of residual assets covered by residual value guarantees
    • Any other means by which the lessor reduces its residual asset risk, for example:
      • repurchase agreements
      • Variable lease payments for use above specified limits
Qualitative information
ASC 842-30-50-3(a), 842-30-50-4 und 842-30-50-7
significant judgments
ASC 842-20-50-3(c)
  • Information about significant assumptions and judgments made, including:
    • Determining whether a contract contains a lease
    • The allocation of consideration in a contract between lease and non-lease components
    • Determining the discount rate for the lease.
  • Information about significant assumptions and judgments made, including:
    • Determining whether a contract contains a lease
    • The allocation of consideration in a contract between lease and non-lease components (unless a lessor elects the practical expedient in paragraph 842-10-15-42A and all non-lease components in the contract qualify for this practical expedient)
    • Determination of the value that the lessor expects from the underlying asset after the end of the lease term
significant judgments
ASC 842-30-50-3(b)
Quantitative information
ASC 842-20-50-4 and 50-6
  • For each period presented, disclose the amounts associated with the lessee's total leasing costs (including amounts recognized in profit or loss and capitalized) and the cash flows resulting from the leasing transactions.
    • Finance lease costs, broken down into:
      • Depreciation of right-of-use assets
      • Interest on lease liabilities
    • Operating-Leasingkosten
    • Short-term rental costs
      • Excludes expenses related to leases of one month or less
    • Variable rental costs
    • Sublease income reported gross separately from finance or operating lease expenses
    • Recognized net gain or loss on sale and leaseback transactions
    • Amounts separated between finance and operating leases for:
      • Cash outflows for amounts included in the measurement of lease liabilities separated into operating and financial cash flows
      • Additional non-monetary information Lease liabilities from the acquisition of right-of-use assets
      • Remaining weighted average lease term
      • weighted average discount rate
(ASC 842-20-55-53 contains an example of such disclosures.)
  • Disclosure of maturity analysis of undiscounted lease liabilities (ie 5 year table) separately for finance leases and operating leases
    • Reconciliation of undiscounted cash flows for finance lease liabilities and operating lease liabilities recognized in the balance sheet
  • for each period[7]submitted, disclose in tabular form:
    • Rental leasing and direct finance leasing
      • Gain or loss recognized at the beginning date
      • Interest income (total or by component of the net investment in the lease)
      • Lease income related to variable lease payments that are not included in the measurement of lease receivables
    • rental contract
      • Lease income related to lease payments, including variable lease payments
  • Report the components of the lessor's total net investment in direct and sale-type finance leases:
    • Book value of lease receivables
    • Unsecured residual assets
    • Deferred sales gain on direct finance lease
  • Type of sale and direct finance lease
    • Explain the significant changes in the balance of residual unsecured assets and deferred sale proceeds for direct finance leases
    • Disclosure of maturity analysis (i.e. 5-year calendar) of undiscounted lease receivables
      • Reconciliation of the undiscounted cash flows to the lease receivables shown in the balance sheet (or shown separately in the notes).
  • rental contract
    • Disclosure of the maturity analysis (i.e. 5-year schedule) of the lease payments to be received
    • Provide the separate property, plant and equipment disclosures required by ASC 360 for underlying assets under operating leases of owned assets
Quantitative information
ASC 842-30-50-5 to 50-6 and 842-30-50-8 to 50-13
Political elections and practical records
ASC 842-20-50-8 and 50-9
  • Post short-term lease policy choice, if elected
    • If the short-term lease expense does not adequately reflect the lessee's short-term lease obligation, disclose that fact and the amount of the short-term lease obligation.
  • Indication of a practical expedient not to separate lease components from non-lease components, if elected
    • Class or classes of underlying assets to which the election applies

  • An entity that elects the practical expedient of not separating the non-lease components from the related lease components (including an entity that accounts for the combined component fully in ASC 606 Revenue from Contracts with Customers) shall disclose the following by underlying asset class :
    • Choice of accounting policy and the class or classes of underlying assets for which the practical expedient has been chosen
    • the nature of
      • Combined Lease Components and Non-Lease Components as a result of applying the practical expedient
      • Any unleased components that are accounted for separately from the combined component because they do not qualify for practical relief
    • The accounting standard that the entity uses to account for the combined component (i.e. ASC 842 or ASC 606)
Political elections and practical records
ASC 842-30-50-3A

Sale with leaseback

When a lessee-seller enters into a sale-leaseback transaction, it must provide lessees with the necessary disclosures. In addition, a buyer-lessor must provide information to lessors. In addition, a seller-lessee must disclose key terms of the sale-leaseback transaction and disclose any gains or losses on the transaction separately from gains or losses on disposal of other assets.

Leveraged Leasing

Although ASC 842 eliminated leveraged lease accounting, leases that meet the definition of a leveraged lease under ASC 840 and begin before the effective date of ASC 842 are granted. As such, companies that continue to hold leveraged leases must continue to provide disclosures as required by ASC 842-50, continuing the existing ASC 840 guidance.

Other Disclosure Considerations


The Leasing Standard requires an entity to provide the general disclosures required by ASC 250 Accounting Amendments and Error Corrections. Entities must also explain to users of financial statements what expedients were used in the transition.

SAB 74 revelations

In periods prior to the adoption of the Leasing Standard, companies are required to make disclosures in accordance with SEC Personnel Accounting Bulletin #74 (codified under SAB Topic11.M), Disclosure of the Impact of Leasing, the recently issued accounting standards, in the registrant's financial statements , if adopted in a future period (“SAB 74”). SAB 74 requires that if a newly issued accounting standard has not yet been adopted, a registrant discloses the potential impact of future adoption in its interim and annual filings with the SEC. SAB 74 disclosures must be both qualitative and quantitative. According to Audit Quality Alert Center 2017-03,SAB Topic 11.M - A focus on disclosures for the new accounting standards, SEC officials expect SAB 74 disclosures to become more robust and quantitative as the new accounting standard approaches become effective. Therefore, the following types of SAB 74 disclosures are expected in the financial statements of an entity registered in periods prior to the effective date of the new accounting standards:

  • A comparison of accounting policies.Applicants must compare their current accounting policies to the expected accounting policies under the new accounting standards.
  • status of implementation.The status of the process should be disclosed, including any major implementation issues that have not yet been addressed or if the process is behind schedule.
  • Considering the impact of the new disclosure requirements in footnotes as well as the impact on the balance sheet and income statement.A new accounting standard is not expected to have a material impact on the primary financial statements; however, significant new disclosures may be required that require significant judgment.
  • Disclosure of the quantitative impact of the new accounting standard, where it can be reasonably estimated.
  • Statement that the expected impact of the new accounting standard on the financial statements cannot be reasonably estimated.
  • Qualitative information.If the registrant is not yet aware of the expected impact on the financial statements, a qualitative description of the impact of the new accounting standard on the registrant's accounting policies should be disclosed.

Selected Financials - 5 Year Table

Some SEC registrants have questioned whether they are required to restate all periods reflected in the selected 5-year summary of financials under the new leasing standard. In short, the answer is no.” Registrants only need to adjust the periods in the financial data table that correspond to the adjusted periods in the registrant's financial statements. For example, a company that elects to apply the new rule from the effective date (i.e., without restating prior comparative periods) would not restate the prior four years in the selected financial data table.

Appendix A – Disclosure Example – RENTERS


For purposes of this example, let's assume that Susie's Stitch-n-Sew ("Susie's") is a national fabric and other craft supplies retailer that primarily leases its retail stores. We do not present a balance sheet but assume that Susie has presented the following items:

(Video) 10.25.22 FASB’s Topic 842: What the New Lease Accounting Standard Means for Your Organization

  • Operational leasing of ROU assets
  • fixed assets, liquid
  • Current portion of operating lease liabilities
  • Long-term operating lease liabilities
  • Current proportion of long-term debt
  • Long-term liabilities

We also do not present a statement of comprehensive income, but assume that Susie provided cost of sales, sales, general and administrative expenses, depreciation and interest.
This example assumes that the ASC 842 policy applies to all periods shown and that all values ​​are in millions.

Note X. Leasing

In the past, Susie's has entered into a number of leases where we are the lessee. Of our 250 retail locations, 240 are operating leases and 5 are finance leases. In addition, we rent out our company headquarters as well as various warehouses and regional offices. We are also involved in 12 other leases under which we previously operated a retail location but are now sub-leased to third parties. In addition, we have chosen the practical option of short-term leasing in connection with the leasing of various equipment used in our stores.

As of December 31, 20X9, we have entered into eight additional retail store leases and one additional warehouse lease that has not yet commenced. Although some of the retail locations are currently under construction, we do not control the building during construction and therefore are not considered owners during construction.

All of our retail leases include multiple optional renewal periods. When we open a new retail location, we typically install brand-specific upgrades with a shelf life of eight years. To the extent that the initial term of the associated lease is less than the useful life of the leasehold improvements, we have determined that there is reasonable assurance that an option to extend will be exercised and therefore the term of the extension is included in the term of the lease. and related payments are reflected in the ROU asset and the lease liability. In general, we do not consider it sufficiently certain to exercise further extension periods, as comparable locations in the same business areas can often be identified with comparable rental prices.

All of our leases include fixed rents, but many of our leases also include variable rents. In particular, several of our leases in certain markets require rental payments calculated as a percentage of sales at that location. In addition, we typically enter into leases where rent payments increase at specified times based on changes in the consumer price index. Although most of our leases are gross, we also have a number of leases where we make separate payments to the landlord based on the cost of the landlord's property and casualty insurance and property taxes levied on the property, as well as some property maintenance. the common area connected to the property. For all of our building leases, we have opted for the practical expedient of not separating rental and non-rental components.

During 20X9, 20X8 and 20X7, we recognize rental expense related to our leases as follows:

Fixed rental costs$ 23,7$ 22,6$ 20,5
Variable rental expenses3.83.63.4
Finance lease costs:
Depreciation of ROU assets2.52.42.2
interest expense2.02.12.0
Short-term rental costs0,20,20,3
sublet income(1.3)(1.1)(1.2)
Rental costs net$ 30,9$ 29,8$ 27,2
Rental costs - sales costs$ 4,2$ 4,0$ 4,1
Rental Costs - Selling, general and administrative costs22.221.318.9
Leasing costs - depreciation and amortization2.52.42.2
Lease Costs - Interest Expense2.02.12.0
Rental costs net$ 30,9$ 29,8$ 27,2

Operating Lease Rights to use assets

Amounts recognized as right-of-use assets related to finance leases are included net in property, plant and equipment in the accompanying balance sheet, while corresponding lease liabilities are included in the current portion of non-current liabilities and non-current liability. Fault. As of December 31, 20x9 and 20x8, the right-of-use assets and lease liabilities related to finance leases were as follows:

Financial leasing of ROU of assets$ 17,6$ 17,0
Finance lease liabilities:
Current proportion of long-term debt2.22.2
Long-term liabilities15.315.1

During the years ended December 31, 20x9, 20x8 and 20x7, we had the following cash and non-cash activities related to our leases:

Cash out for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$ 26,0$ 25,7$ 24,8
Operating cash flow from finance leases2.02.12.0
Finance cash flows from finance leases2.01.91.9
Non-monetary investing and financing activities:
Access to ROU assets received from:
New operating lease liabilities$ 18,7$ 20,3$ 16,2
New finance lease liabilities-3.4

Future payments under operating and finance leases as of December 31, 20x9 are as follows:

(Video) Understanding Lease Modifications & Footnote Disclosures Under ASC 842

Expiry in 20x0$ 22,6$ 2,2
20x4 and up35.26.1
Less discount effects(35.9)(3.6)
Lease liabilities reported$ 92,9$ 15,3

As of December 31, 20x9 and 20x8, the remaining weighted average lease term for all operating leases is 3.4 years and 3.5 years, respectively, while the remaining weighted average lease term for all finance leases is 4.9 years and 5.6 years, respectively.

Because we generally do not have access to the interest rate included in the lease, we use our incremental borrowing rate as the discount rate. The weighted average discount rate related to operating leases as of December 31, 20x9 and 20x8 is 4.2% and 4.0%, respectively, while the weighted average discount rate related to finance leases is 3.9% and 3.8%, respectively .

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[1] ASC 842-20-50-2 und ASC 842-30-50-2

[2] ASU 2016-02 Background and Basis for Conclusions paragraph FC 276

[3] ASC 842-30-50-5

[4] Unlike other recent standards, ASC 842 does not distinguish between public entities and all other entities. The disclosure principle and the associated requirements apply to all companies.

(Video) Financial Accounting Standards Board’s FASB Updated Lease Accounting Standard, ASU 2016 02 Topic 842

[5] This summary of required disclosures may be helpful in understanding general disclosure requirements; however, it should not be used in place of the tenant pattern.

[6] In December 2018, the FASB issued an exposure draft entitled Leases (842): Coding Enhancements for Leasingors. Once finalized, the exposure draft would allow lessors within the scope of ASC 942, Financial Services: Depository and Lending, to continue to report principal payments received under leases as investing activities.

[7] Rental income disclosures as described in ASC 842-30-50-5 are required for each yearand provisional(e.g. quarterly) reporting period.


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