Important Things To Know About ASC 842
                     Important Things To Know 
About ASC 842
Important Things To Know About ASC 842
ASC 842, which in fully stands for Accounting standards 
Codification 842, is a new lease accounting standard that was 
published by the Financial Accounting Standards Board. It 
replaced the previous US GAAP leasing standard, ASC 840, 
which was almost forty years old. The main purpose of ASC 
842 is to close a major accounting loophole in ASC 840, which 
is the off-balance sheet operating leases.
So what exactly does ASC 842 change? This new 
lease accounting standard represents a significant overhaul of 
the accounting treatment for leases. The most significant 
change is that most leases, including most operating leases, 
are capitalized on the balance sheet in ASC 842. 
Important Things To Know About ASC 842
The ASC 840, the Financial Accounting Standards Board 
permitted operating leases to be reported only in the footnotes 
of corporate financial statements. Things are different under 
ASC 842. The only leases that are exempt from the 
capitalization requirement are the short term leases or those 
that are equal to 12 months in length. 
There are various challenges that companies face when it 
comes to ASC 842 compliance. For companies  that are still in 
pre-adoption, they are likely to be facing challenges such as 
collecting data, calculating the incremental borrowing rate, 
finding embedded leases, designing the transition plan and 
software selection. 
Important Things To Know About ASC 842
Companies that are in the post-adoption stage are likely to be 
facing the same challenges as the companies in the pre-
adoption stage. 
Under ASC 842, leases are either classified as finance leases or 
operating leases. However, the classification criteria has 
somewhat changed with time. Various factors determine the 
classification, including whether the underlying asset transfers 
ownership to the lessee at the end of the term, if there is an 
option for buying the underlying asset that is likely to be 
exercised, if the lease term is for the major part of the 
remaining economic life of the asset, and so on.
Important Things To Know About ASC 842
For more information on ASC 842, visit our website at 
www.nakisa.com
Important Things To Know 
About ASC 842