Lease accounting challenges

How to succeed with adoption of the standards

Companies are facing a variety of challenges as they implement the lease accounting standards, including ASC 842 and IFRS 16. Learn more about each of these technical accounting challenges and best practices for handling them.

Debt Covenants

With leases shifting to the balance sheet as liabilities, the standards may affect debt and loan covenants and creditor relationships.

Incremental Borrowing Rate

A critical new factor for understanding lease liabilities, this may be a new metric for many, causing the accounting team to look to Treasury to calculate this properly.

Lease and Non-Lease Components

The standards require taking a fresh look at lease and non-lease components and calculating standalone observable prices.

Lease Definition

Use the right approach to determine whether a contract contains a lease or not.

Lease versus Buy Strategy

The standards may affect an organization’s Lease vs. Buy strategy given the balance sheet changes.

Lessor Accounting

Most of the requirements of the standards affect leesees, but some may have an impact on lessors. Sometimes lessees become lessors as well.

Sale Leaseback and Build-to-Suit

For real estate, there are specific rules for sale leaseback and build-to-suit accounting under the standards.

Tax Impact

Due to the shifts in liabilities, there may be some tax impact from the standards.

Transition

As deadlines continue to shift around, the options for transition and practical expedients have also changed.