ASC 842
LEASE ACCOUNTING STANDARDS
INTRODUCTION
¡ Welcome to the presentation about ASC 842 – Lease Accounting Standards.
¡ This presentation aims to provide an overview of ASC 842, its purpose, key changes introduced, and its impact on businesses.
WHAT IS ASC 842?
¡ ASC 842, or Accounting Standards Codification 842, is a set of lease accounting guidelines published by the Financial Accounting Standards Board (FASB).
¡ Its purpose is to ensure better transparency and accuracy in financial reporting related to leasing activities.
OBJECTIVES OF ASC 842
¡ To provide greater visibility of leasing obligations in financial statements.
¡ To align lease accounting treatment across industries and countries.
¡ To improve comparability and usability of financial statements.
KEY CHANGES FROM ASC 842
¡ Operating Leases: Under ASC 842, operating leases are required to be recognized on the balance sheet as Rightof-Use (ROU) assets with corresponding lease liabilities.
¡ Disclosure Requirements: Enhanced disclosure requirements to provide greater transparency of lease obligations.
¡ Effects on Financial Ratios: The inclusion of lease liabilities might impact financial ratios and performance metrics.
ASC 842 IMPLEMENTATION TIMELINE
¡ Effective for public companies for fiscal years beginning after December 15, 2018.
¡ Private companies and non-profit organizations have been granted an extended effective date until fiscal years after December 15, 2021.
STEPS FOR ASC 842 ADOPTION
¡ Identification and categorization of leases.
¡ Determination of lease payments and present value.
¡ Recognition of Right-of-Use (ROU) assets and lease liabilities.
¡ Lessee accounting treatment under ASC 842.
¡ Enhanced disclosure requirements.
ASC 842 IMPLICATIONS FOR LESSEES
¡ Increased visibility of lease obligations on balance sheets.
¡ Potential impact on debt-to-equity ratios and financial covenant compliance.
¡ Improved transparency and comparability of financial statements.
¡ Potential changes in lease negotiation and leasing strategies.
ASC 842 IMPLICATIONS FOR LESSORS
¡ Modifications to lease agreements and contracts to meet new accounting standards.
¡ Enhanced financial reporting and disclosure requirements.
¡ Potential impact on cash flow and profitability analysis.
¡ Opportunities for lessors to provide guidance and support to lessees in transitioning to ASC 842.
RESOURCES AND SUPPORT FOR ASC 842 IMPLEMENTATION
¡ Accounting firms and consultants with expertise in lease accounting.
¡ Educational resources and training programs offered by industry organizations.
¡ Software and technology solutions specifically designed for ASC 842 compliance.
CONCLUSION
¡ ASC 842 represents a significant shift in lease accounting standards.
¡ Its purpose is to enhance transparency and comparability in financial reporting related to leasing activities.
¡ Lessees and lessors must be prepared for the adoption and implementation of ASC 842 to ensure compliance and accurate financial reporting.
