{"id":1997,"date":"2023-10-10T09:00:10","date_gmt":"2023-10-10T13:00:10","guid":{"rendered":"https:\/\/visuallease.com\/?p=1997"},"modified":"2025-11-24T03:30:50","modified_gmt":"2025-11-24T07:30:50","slug":"asc-842-practical-expedients-and-transition-requirements","status":"publish","type":"post","link":"https:\/\/visuallease.com\/asc-842-practical-expedients-and-transition-requirements\/","title":{"rendered":"ASC 842 Practical Expedients"},"content":{"rendered":"[vc_row type=”in_container” full_screen_row_position=”middle” scene_position=”center” text_color=”dark” text_align=”left” overlay_strength=”0.3″ shape_divider_position=”bottom”][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” width=”1\/1″ tablet_text_alignment=”default” phone_text_alignment=”default” column_border_width=”none” column_border_style=”solid”][vc_row_inner column_margin=”default” text_align=”left” class=”initial”][vc_column_inner column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” width=”1\/1″ column_border_width=”none” column_border_style=”solid”]
\"ASC<\/div><\/div>[vc_column_text]Table of Contents:<\/p>\n
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  1. What are Practical Expedients?<\/a>\n
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    1. Introduction to practical expedients in ASC 842 and IFRS 16 adoption.<\/a><\/li>\n<\/ol>\n<\/li>\n
    2. ASC 842 Transition Methods<\/a>\n
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      1. An overview of transition methods in ASC 842 designed to facilitate the shift from the previous lease accounting method to the new standard.<\/a><\/li>\n<\/ol>\n<\/li>\n
      2. Three ASC 842 Practical Expedients in One Package<\/a>\n
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        1. Understanding the all-or-nothing approach of the three expedients package.<\/a><\/li>\n<\/ol>\n<\/li>\n
        2. What does the ASC 842 Practical Expedients Package Mean for Lease Accounting and Compliance?<\/a>\n
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          1. Addressing implications like lease reclassification, embedded leases, and initial direct costs.<\/a><\/li>\n<\/ol>\n<\/li>\n
          2. Hindsight Expedient Applied to ASC 842 Transition Requirements<\/a>\n
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            1. Exploring the use of the hindsight expedient for lease classifications.<\/a><\/li>\n<\/ol>\n<\/li>\n
            2. Practical Expedient Combining Lease and Non-Lease Components<\/a>\n
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              1. Understanding an expedient for allocating fixed consideration across lease and non-lease components.<\/a><\/li>\n<\/ol>\n<\/li>\n
              2. Practical Expedient for Restating Prior Year Financials<\/a>\n
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                1. Explaining the expedient for restating financials under ASC 842.<\/a><\/li>\n<\/ol>\n<\/li>\n
                2. Practical Expedient for Short-Term Leases<\/a>\n
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                  1. Details on the expedient for handling short-term leases under GAAP.<\/a><\/li>\n<\/ol>\n<\/li>\n
                  2. Practical Expedient for Private Company Discount Rates<\/a>\n
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                    1. Insights into using risk-free interest rates as an alternative to incremental borrowing rates.<\/a><\/li>\n<\/ol>\n<\/li>\n
                    2. Practical Expedient for Land Easements<\/a>\n
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                      1. Addressing the expedient related to land easements existing before the effective date of the new standard.<\/a><\/li>\n<\/ol>\n<\/li>\n
                      2. Accounting Standards Update (ASU) 2023-01, Leases (Topic 842): Common Control Arrangements<\/a>\n
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                        1. Overview of the ASU and its impact on accounting for common control leases.<\/a><\/li>\n<\/ol>\n<\/li>\n
                        2. Practical Expedient for Related Party Leases<\/a>\n
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                          1. Exploring the expedient for handling related party leases.<\/a><\/li>\n<\/ol>\n<\/li>\n
                          2. IFRS 16 Practical Expedients<\/a>\n
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                            1. An overview of practical expedients available under IFRS 16.<\/a><\/li>\n<\/ol>\n<\/li>\n<\/ol>\n[\/vc_column_text][\/vc_column_inner][\/vc_row_inner][vc_column_text]\n

                              What are Practical Expedients?<\/h2>\n

                              Practical expedients are considerations, or shortcuts companies can elect to lessen their burden in the <\/span>adoption of ASC 842 and IFRS 16<\/span><\/a>. They were designed to provide relief for companies during the transition to the new standards.<\/span><\/p>\n

                              Why Practical Expedients Matter: Early Decision-Making<\/h2>\n

                              In the time since FASB passed the new accounting standard ASC 842<\/a> in 2016, the organization has issued periodic updates to the codification for generally accepted accounting principles (GAAP). These Accounting Standards Updates (ASUs) include <\/span>practical expedients<\/span><\/i> that have been created to simplify ASC 842 transition requirements.<\/span><\/p>\n

                              As we mentioned in <\/span>our blog on lease data collection tips<\/span><\/a>, strategic accounting decisions need to be made early on, before data collection for FASB ASC 842 compliance begins. That includes choosing which practical expedients to use.<\/span>[\/vc_column_text][vc_column_text el_class=”line_top”]\n

                              ASC 842 Transition Methods<\/h3>\n

                              Transition methods in ASC 842 are practical expedients designed to facilitate the transition from the previous lease accounting method to the new standard.<\/span><\/p>\n

                              Discount Package:<\/h3>\n

                              The discount package allows lessees to apply a single discount rate to a group of leases with reasonably similar characteristics. This simplifies the process and saves time during the transition.<\/span><\/p>\n

                              Hindsight Package:<\/h3>\n

                              The hindsight practical expedient permits lessees to use hindsight for lease renewals and purchase options when determining the lease term. However, this option is rarely chosen due to its complexity and potential accounting implications.<\/span><\/p>\n

                              Package of 3:<\/h3>\n

                              The package of 3 expedient primarily benefits organizations during the transition phase. It allows lessees to avoid reassessing whether expired or existing contracts are or contain leases, reclassifying leases, and reevaluating initial direct costs for existing leases. This streamlines the transition process and reduces the burden of reassessing multiple lease aspects.<\/span><\/p>\n[\/vc_column_text][vc_column_text el_class=”line_top”]\n

                              Three ASC 842 practical expedients in one package<\/h2>\n

                              Among the practical expedients created to ease the ASC 842 transition requirements is a package deal \u2014 three expedients that must be elected all together or not at all.<\/span><\/p>\n

                              When you elect this package of practical expedients, it must be applied consistently to all leases. In addition, you need to disclose that the three expedients have been used.<\/span><\/p>\n

                              Basically, these all-or-nothing practical expedients say that:<\/strong><\/h4>\n
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                              1. You don\u2019t need to reassess the lease classification for any expired or existing leases<\/span><\/li>\n
                              2. You don\u2019t need to reevaluate whether any existing or expired contracts contain leases<\/span><\/li>\n
                              3. You don\u2019t need to reassess previously recorded initial direct costs for any existing leases<\/span><\/li>\n<\/ol>\n[\/vc_column_text][vc_column_text el_class=”line_top”]\n

                                What does the ASC 842 practical expedients package mean for lease accounting and compliance?<\/h2>\n[\/vc_column_text][vc_column_text el_class=”line_top”]\n