{"id":798,"date":"2020-12-31T12:00:21","date_gmt":"2020-12-31T16:00:21","guid":{"rendered":"https:\/\/visuallease.com\/?p=798"},"modified":"2025-11-24T03:40:41","modified_gmt":"2025-11-24T07:40:41","slug":"key-difference-gaap-ifrs-new-lease-standards","status":"publish","type":"post","link":"https:\/\/visuallease.com\/key-difference-gaap-ifrs-new-lease-standards\/","title":{"rendered":"Lease accounting: The key difference between the GAAP and IFRS new lease standards"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/visuallease.com\/key-difference-gaap-ifrs-new-lease-standards\/#How_is_a_lease_defined_under_IFRS_lease_accounting_vs_GAAP\" >How is a lease defined under IFRS lease accounting vs. GAAP<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/visuallease.com\/key-difference-gaap-ifrs-new-lease-standards\/#Materiality_of_assets\" >Materiality of assets<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/visuallease.com\/key-difference-gaap-ifrs-new-lease-standards\/#Sublease_accounting_classifications\" >Sublease accounting classifications<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/visuallease.com\/key-difference-gaap-ifrs-new-lease-standards\/#Variable_lease_payments\" >Variable lease payments<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/visuallease.com\/key-difference-gaap-ifrs-new-lease-standards\/#How_to_define_a_lease_term_under_IFRS_vs_GAAP_lease_accounting\" >How to define a lease term under IFRS vs. GAAP lease accounting<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/visuallease.com\/key-difference-gaap-ifrs-new-lease-standards\/#Sale_leaseback_transactions\" >Sale leaseback transactions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/visuallease.com\/key-difference-gaap-ifrs-new-lease-standards\/#Difference_between_GAAP_and_IFRS_lease_standards_Good_news_and_bad_news\" >Difference between GAAP and IFRS lease standards: Good news and bad news<\/a><\/li><\/ul><\/nav><\/div>\n[vc_row type=&#8221;in_container&#8221; full_screen_row_position=&#8221;middle&#8221; scene_position=&#8221;center&#8221; text_color=&#8221;dark&#8221; text_align=&#8221;left&#8221; overlay_strength=&#8221;0.3&#8243; shape_divider_position=&#8221;bottom&#8221;][vc_column column_padding=&#8221;no-extra-padding&#8221; column_padding_position=&#8221;all&#8221; background_color_opacity=&#8221;1&#8243; background_hover_color_opacity=&#8221;1&#8243; column_shadow=&#8221;none&#8221; column_border_radius=&#8221;none&#8221; width=&#8221;1\/1&#8243; tablet_text_alignment=&#8221;default&#8221; phone_text_alignment=&#8221;default&#8221; column_border_width=&#8221;none&#8221; column_border_style=&#8221;solid&#8221;][vc_column_text]<img decoding=\"async\" class=\"aligncenter size-full wp-image-679\" src=\"\/wp-content\/uploads\/2017\/12\/VL_12.07_BlogPost.png\" alt=\"difference between gaap and ifrs\" width=\"1016\" height=\"350\" \/><\/p>\n<p>Beginning in 2006, there was a concerted effort by the two accounting standard bodies (FASB and IASB) to synchronize their respective standards on leasing to assure consistency and uniformity. The effort culminated last year with the release of the two new standards: IASB\u2019s international standard (<a href=\"https:\/\/visuallease.com\/compliance\/ifrs-16\/\">IFRS 16<\/a>, Leases) and the U.S. GAAP standard (<a href=\"https:\/\/visuallease.com\/compliance\/asc-842\/\">FASB\u2019s Accounting Standard Update (ASU) No. 2016-02 Leases, Topic 842<\/a>).<\/p>\n<p>The new <a href=\"https:\/\/visuallease.com\/compliance\/ifrs-16\/\"><span style=\"font-weight: 400\">IFRS 16 lease accounting standard<\/span><\/a> went into effect in 2019, along with U.S. GAAP lease accounting for public companies. <a href=\"https:\/\/visuallease.com\/compliance\/asc-842\/\">Private companies have until December 15, 2021<\/a> to adopt the new GAAP standard (ASC 842).<\/p>\n<p>While the two standards are closely aligned, particularly relating to putting lease assets and liabilities on the balance sheet, there are significant differences between IFRS and GAAP.<!--more--><\/p>\n<p>In this article, we\u2019ll explore the key difference between GAAP and IFRS when it comes to lease accounting under the new standards.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"How_is_a_lease_defined_under_IFRS_lease_accounting_vs_GAAP\"><\/span>How is a lease defined under IFRS lease accounting vs. GAAP<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Perhaps the most significant difference between the GAAP and IFRS lease standards is the definition of a lease. While the IFRS standard considers <strong>all<\/strong> leases as financial leases, the FASB\/U.S. GAAP standard <strong>differentiates between an operating lease and a finance lease.<\/strong><\/p>\n<p>Under the new FASB standard, both types of leases require a lessee to put a right-of-use asset and a lease liability on the balance sheet. However, in the case of a finance lease, interest on the lease liability is recognized separately from the amortization of the right-of-use asset in the income statement.<\/p>\n<p>For an operating lease, a single lease cost, generally allocated on a straight-line basis over the lease term, is presented in the income statement.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Materiality_of_assets\"><\/span>Materiality of assets<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Another key difference between the GAAP and IFRS standards is the issue of <strong>materiality<\/strong>. The IFRS standard maintains an exemption for low value assets such as telephones and computers. A threshold of $5,000 was cited by the IASB as a parameter to use to assess materiality.<\/p>\n<p>The US GAAP standard doesn\u2019t specify a cost level but allows that lease assets that are considered immaterial, need not be capitalized.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Sublease_accounting_classifications\"><\/span>Sublease accounting classifications<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Another key difference between the GAAP and IFRS standards relates to the <strong>classification of a sublease:<\/strong><\/p>\n<ul>\n<li>FASB\u2019s ASU No. 2016-02 requires an initial lessee that subleases the underlying asset, therefore becoming a sub-lessor, to determine the classification of the sublease by referencing the leased asset in the original lease.<\/li>\n<li><a href=\"https:\/\/visuallease.com\/compliance\/ifrs-16\/\"><span style=\"font-weight: 400\">IFRS 16<\/span><\/a> requires that the sub-lessor determine the sublease classification by referencing the right-of-use asset that arose from the original lease.<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Variable_lease_payments\"><\/span>Variable lease payments<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Yet another key difference between the GAAP and IFRS standards centers on the question of <strong>variable lease payments<\/strong>.<\/p>\n<p>Lessees are required to measure these variable lease payments initially at the index or rate on the lease commencement date. The <strong>remeasurement<\/strong> of these payments, however, differs under the two bases of accounting:<\/p>\n<ul>\n<li>Under US GAAP, a lessee remeasures the payments only when it is required to reassess the lease obligation for other purposes.<\/li>\n<li>IFRS, however, requires an entity to remeasure these payments every time an adjustment to the lease payments takes effect.<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"How_to_define_a_lease_term_under_IFRS_vs_GAAP_lease_accounting\"><\/span>How to define a lease term under IFRS vs. GAAP lease accounting<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Both standards permit a lessee to apply a short-term lease exemption for a lease with a term of 12 months or less. However, there\u2019s a difference between GAAP and IFRS when it comes to the definition of a lease term.<\/p>\n<p>In determining the lease term, a lessee excludes purchase options that it is reasonably certain to exercise under US GAAP. A lessee excludes all purchase options from this determination under IFRS.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Sale_leaseback_transactions\"><\/span>Sale leaseback transactions<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Another key difference between GAAP and IFRS is related to <strong>sale leaseback transactions<\/strong>.<\/p>\n<p>A sale and leaseback transaction is not a sale under US GAAP if it does not satisfy the sale requirements in Topic 606, Revenue from Contracts with Customers. If the transaction is a sale, the seller-lessee can recognize the entire gain on the transaction.<\/p>\n<p>Under IFRS, a sale and leaseback transaction is not a sale if it does not meet the requirements for determining when a performance obligation is satisfied in IFRS 15, Revenue from Contracts with Customers (similar to Topic 606 under US GAAP). If the transaction is a sale, the seller-lessee can only recognize a gain for the amount that relates to the buyer-lessor\u2019s residual interest in the leased asset at the end of the leaseback.<\/p>\n<p>Learn more: <a href=\"https:\/\/visuallease.com\/sale-leaseback-new-lease-accounting-standards\/\">Sale Leaseback and the New Lease Accounting Standards<\/a><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Difference_between_GAAP_and_IFRS_lease_standards_Good_news_and_bad_news\"><\/span>Difference between GAAP and IFRS lease standards: Good news and bad news<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>In summary, the good news is that the IFRS and GAAP leasing standards are quite similar and address the primary objective of the new standards: to make the leverage effect of leasing more transparent.<\/p>\n<p>But the bad news is that there are differences between the GAAP and IFRS standards requiring careful analysis of the lease portfolio, particularly for US based companies with international operations and leases.<\/p>\n<p>Are you ready to implement the new lease accounting standards? Our <a href=\"https:\/\/visuallease.com\/solutions\/lease-accounting-software\/\"><span style=\"font-weight: 400\">Lease Accounting Software<\/span><\/a> can help you implement these <a href=\"https:\/\/visuallease.com\/a-complete-guide-to-lease-accounting\/\"><span style=\"font-weight: 400\">new lease accounting standards<\/span><\/a> and <span style=\"font-weight: 400\">keep you IFRS &amp; GAAP compliant. Still not sure, find out what you need in lease accounting software.<\/span><\/p>\n<p>&nbsp;<\/p>\n[\/vc_column_text][\/vc_column][\/vc_row][vc_row type=&#8221;in_container&#8221; full_screen_row_position=&#8221;middle&#8221; scene_position=&#8221;center&#8221; text_color=&#8221;dark&#8221; text_align=&#8221;left&#8221; overlay_strength=&#8221;0.3&#8243; shape_divider_position=&#8221;bottom&#8221;][vc_column column_padding=&#8221;no-extra-padding&#8221; column_padding_position=&#8221;all&#8221; background_color_opacity=&#8221;1&#8243; background_hover_color_opacity=&#8221;1&#8243; column_shadow=&#8221;none&#8221; column_border_radius=&#8221;none&#8221; width=&#8221;1\/1&#8243; tablet_text_alignment=&#8221;default&#8221; phone_text_alignment=&#8221;default&#8221; column_border_width=&#8221;none&#8221; column_border_style=&#8221;solid&#8221;][vc_column_text]\n[\/vc_column_text][\/vc_column][\/vc_row][vc_row type=&#8221;in_container&#8221; full_screen_row_position=&#8221;middle&#8221; scene_position=&#8221;center&#8221; text_color=&#8221;dark&#8221; text_align=&#8221;left&#8221; overlay_strength=&#8221;0.3&#8243; shape_divider_position=&#8221;bottom&#8221;][vc_column column_padding=&#8221;no-extra-padding&#8221; column_padding_position=&#8221;all&#8221; background_color_opacity=&#8221;1&#8243; background_hover_color_opacity=&#8221;1&#8243; column_shadow=&#8221;none&#8221; column_border_radius=&#8221;none&#8221; width=&#8221;1\/1&#8243; tablet_text_alignment=&#8221;default&#8221; phone_text_alignment=&#8221;default&#8221; column_border_width=&#8221;none&#8221; column_border_style=&#8221;solid&#8221;][vc_column_text]\n[\/vc_column_text][\/vc_column][\/vc_row]\n","protected":false},"excerpt":{"rendered":"<p>[vc_row type=&#8221;in_container&#8221; full_screen_row_position=&#8221;middle&#8221; scene_position=&#8221;center&#8221; text_color=&#8221;dark&#8221; text_align=&#8221;left&#8221; overlay_strength=&#8221;0.3&#8243; shape_divider_position=&#8221;bottom&#8221;][vc_column column_padding=&#8221;no-extra-padding&#8221; column_padding_position=&#8221;all&#8221; background_color_opacity=&#8221;1&#8243; background_hover_color_opacity=&#8221;1&#8243; column_shadow=&#8221;none&#8221; column_border_radius=&#8221;none&#8221; width=&#8221;1\/1&#8243; tablet_text_alignment=&#8221;default&#8221; phone_text_alignment=&#8221;default&#8221; column_border_width=&#8221;none&#8221; column_border_style=&#8221;solid&#8221;][vc_column_text] Beginning in 2006, there was a concerted effort by the two&#8230;<\/p>\n","protected":false},"author":2,"featured_media":796,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","footnotes":"","_links_to":"","_links_to_target":""},"categories":[170],"tags":[185,196,195],"company_size":[],"company_portfolio_size":[],"company_industry":[],"case_study_topic":[],"class_list":["post-798","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-lease-accounting","tag-asc-842","tag-ifrs-15","tag-visual-lease-round-table"],"acf":[],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/posts\/798","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/comments?post=798"}],"version-history":[{"count":0,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/posts\/798\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/media\/796"}],"wp:attachment":[{"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/media?parent=798"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/categories?post=798"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/tags?post=798"},{"taxonomy":"company_size","embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/company_size?post=798"},{"taxonomy":"company_portfolio_size","embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/company_portfolio_size?post=798"},{"taxonomy":"company_industry","embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/company_industry?post=798"},{"taxonomy":"case_study_topic","embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/case_study_topic?post=798"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}