Lease accounting for the health care industry will change under the new standards. Health care companies lease a diverse range of assets from manufacturing space for drug compounds, to lab equipment and hospital space.
The new leasing standards will require health care companies to update their accounting policies based on the new principles. In some cases, extensive analysis may be required to arrive at judgments on how to apply the standards to certain lease types.
Key Considerations
1. How are customized or non-substitutable assets in supply contracts treated under the new standards? Consider assets like medical and lab equipment.
2. Do contracts to use manufacturing space for medication creation contain leases? Consider whether the pharmaceutical or manufacturing company has control over the space.
3. How are lease and non-lease components separated in a contract? Consider arrangements that contain multiple provisions for items like buildings, land, and maintenance.
4. Will you need to report under GASB 87 (for public entities) or FASB’s ASC 842 (for private entities)?
What the Experts Think
Links to Additional Resources
In depth: Pharmaceutical and Life Sciences industry supplement to leasing standard
In this supplement, PwC describes the impacts of the new lease accounting standards on the pharmaceutical and life sciences industry, bringing changes to matters like embedded leases, allocation, and more.
How the FASB’s new leases standard will affect health care entities
In their "Technical Line" publication, EY details the ways in which ASC 842 could bring changes to the health care industry, from identifying lease and non-lease components to assets.
