Leases

ASU 2016-02 Leases (Topic 842)


Overview


On February 25, 2016, the FASB completed its Leases project by issuing ASU No. 2016-02, Leases (Topic 842). The new guidance establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases.

To that end, the new guidance:
  • Results in a more faithful representation of the rights and obligations arising from leases by requiring lessees to recognize the lease assets and lease liabilities that arise from leases in the statement of financial position and to disclose qualitative and quantitative information about lease transactions, such as information about variable lease payments and options to renew and terminate leases
  • Results in fewer opportunities for organizations to structure leasing transactions to achieve a particular accounting outcome on the statement of financial position
  • Improves understanding and comparability of lessees’ financial commitments regardless of the manner they choose to finance the assets used in their businesses
  • Aligns lessor accounting and sale and leaseback transactions guidance more closely to comparable guidance in Topic 606, Revenue from Contracts with Customers, and Topic 610, Other Income
  • Provides users of financial statements with additional information about lessors’ leasing activities and lessors’ exposure to credit and asset risk as a result of leasing
  • Clarifies the definition of a lease to address practice issues that were raised about the previous definition of a lease and to align the concept of control, as it is used in the definition of a lease, more closely with the control principle in both Topic 606, and Topic 810, Consolidation
The new guidance affects any organization that enters into a lease, or sublease, with some specified exemptions. Because a lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration, this guidance does not apply to any of the following:
  • Leases of intangible assets (see Topic 350, Intangibles—Goodwill and Other).
  • Leases to explore for or use minerals, oil, natural gas, and similar nonregenerative resources (see Topics 930, Extractive Activities—Mining, and 932, Extractive Activities—Oil and Gas). This includes the intangible right to explore for those natural resources and rights to use the land in which those natural resources are contained (that is, unless those rights of use include more than the right to explore for natural resources), but not equipment used to explore for the natural resources.
  • Leases of biological assets, including timber (see Topic 905, Agriculture).
  • Leases of inventory (see Topic 330, Inventory).
  • Leases of assets under construction (see Topic 360, Property, Plant, and Equipment).

Effective Dates


The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for any of the following:
  1. A public business entity, as defined in U.S. GAAP
  2. A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market
  3. An employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission (SEC).
For all other organizations, the new guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

Early application is permitted for all organizations.

Additional Information

To Learn More

  • Read the FASB In Focus—a summary of the ASU
  • Read the FASB: Understanding Costs and Benefits
  • Watch Why a New Leases Standard? —a video featuring FASB Members Jim Kroeker, Hal Schroeder, and Tom Linsmeier
  • Watch Putting Leases on the Balance Sheet —a video featuring FASB Member Daryl Buck and FASB Senior Project Manager Danielle Zeyher discuss how organizations that lease assets can apply FASB’s new guidance on leases.
  • Watch Leases: A Quick Example of the Display Approach —a video featuring FASB Senior Project Manager Danielle Zeyher and FASB Assistant Project Manager Lisa Kaestle that discusses the approach for recognizing operating leases on the balance sheet. This approach was specifically designed to allow preparers to leverage existing systems and processes.
  • Watch the FASB WebcastIN FOCUS: FASB Accounting Standards Update on Leases. The webcast provided an overview of the ASU and the Board and staff answered questions submitted by viewers.

Post-Issuance Activities

Have A Question?

Submit questions about the new requirements using our Technical Inquiry System.