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New leasing standard puts greater pressure on lease identification for lessees

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Companies are faced with a threshold question when implementing the FASB’s new leasing standard: Which contracts are subject to the new lease accounting model? This question is particularly important for lessees, because operating lease accounting for lessees is changing dramatically. The new standard requires lessees to recognize assets and liabilities on their balance sheets for nearly all leases, including operating leases, that have been historically off-balance sheet. Determining whether a contract meets the definition of a lease under ASC 842 will significantly affect the required accounting for lessees, since operating leases will no longer be accounted for similarly to nonlease executory contracts.

This bulletin examines the new definition of a lease under the new guidance and the related implementation guidance.