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A Straightforward Guide to ASC 842 Disclosures Requirements

The introduction of ASC 842 has brought significant changes to lease accounting, including enhanced disclosure requirements. These new requirements aim to provide a clearer picture of an entity's leasing activities and associated financial impacts. Let's explore the lease disclosure requirements under ASC 842.

Lessee Disclosure Requirements

Under ASC 842, lessees must provide qualitative and quantitative disclosures about their leasing activities. The primary goal of these disclosures is to give financial statement users a better understanding of the lessee's leasing arrangements, associated risks, and financial impacts.

Qualitative Disclosures

Qualitative disclosures provide a narrative explanation of the lessee's leasing activities. These disclosures include the following:

  1. General description of the leasing arrangements, including the nature of the leased assets and lease terms.
  2. Information about significant assumptions and judgments made by the lessee when applying ASC 842, such as determining the discount rate or lease term.
  3. Explanation of any significant lease transactions that occurred during the reporting period, including lease modifications, terminations, or sale-leaseback transactions.
Quantitative Disclosures

Quantitative disclosures provide numerical information about the lessee's leasing activities, such as:

  1. Total lease cost, broken down by lease type (e.g., operating leases, finance leases).
  2. Weighted-average remaining lease term and weighted-average discount rate, separated by lease type.
  3. Maturity analysis of lease liabilities, presented in a tabular format, showing the undiscounted cash flows for each of the first five years and a total for the remaining years.
  4. Reconciliation of the opening and closing balances of the right-of-use (ROU) assets and lease liabilities, including any additions, modifications, or terminations during the reporting period.
Lessor Disclosure Requirements

While ASC 842 primarily focuses on lessee accounting, lessors also have disclosure requirements. These disclosures aim to provide financial statement users with information about the lessor's leasing activities and associated risks.

Qualitative Disclosures
  1. General description of the lessor's leasing arrangements, including the nature of the underlying assets and lease terms.
  2. Information about significant assumptions and judgments made by the lessor when applying ASC 842, such as determining the lease classification or residual asset values.
Quantitative Disclosures
  1. Lease income, broken down by lease type (e.g., operating leases, sales-type leases, direct financing leases).
  2. Information about significant components of the lessor's net investment in leases, such as the carrying amount of the lease receivables, unearned income, and residual assets.
  3. Maturity analysis of the lease receivables, presented in a tabular format, showing the undiscounted cash flows for each of the first five years and a total for the remaining years.

Understanding and complying with the lease disclosure requirements under ASC 842 is crucial for lessees and lessors. By providing qualitative and quantitative information about leasing activities, entities can offer financial statement users a transparent view of their leasing arrangements and the associated financial impacts. By staying informed you'll be well-equipped to navigate the lease disclosure requirements of ASC 842 confidently.

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