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Introduction

Topic Difference
Transition ASC 842 requires a modified retrospective approach to each lease that
existed at the date of initial application as well as leases entered into after
that date. It must elect whether the date of initial application is the
beginning of the earliest comparative period presented in the financial
statements, or the beginning of the period of adoption. In the latter case,
the reporting entity would not restate the comparative periods. ASC 842
does not permit a full retrospective approach.
IFRS 16 allows a reporting entity to elect a full retrospective approach, or
a simplified approach, but not the modified retrospective approach.

Other □ IFRS 16 has guidance excluding certain leases of low value assets
from its recognition and measurement guidance

□ IFRS 16 has similar but not identical disclosure requirements

□ The accounting for subleases differs in some respects

1.2 High-level overview

The FASB concluded that a lessee’s obligation to make lease payments meets the definition of a
liability, as described in FASB Concept Statement No. 6 (CON 6), because it involves a present
obligation that arises from a past event and the obligation is expected to result in an outflow of
economic benefits. The “past event” arises when the lessee signs the lease and the lessor makes the
underlying leased asset available to the lessee. The “present obligation” arises because the lessee
cannot typically avoid making the contractual payments.

The boards also believe that a lessee’s right to use the underlying asset during the lease term meets the
CON 6 definition of an asset. Despite legally owning the asset, the lessor typically cannot use the
underlying asset or even access the underlying asset without the lessee’s consent.

These two conclusions formed the core principles of ASC 842.

Excerpt from the Summary of ASU 2016-02
The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise
from leases. All leases create an asset and a liability for the lessee in accordance with FASB Concepts
Statement No. 6, Elements of Financial Statements, and, therefore, recognition of those lease assets
and lease liabilities represents an improvement over previous GAAP, which did not require lease assets
and lease liabilities to be recognized for most leases.

1.2.1 Definition and scope

A lease conveys the right to use an underlying asset for a period of time in exchange for consideration.
At the inception of an arrangement, the parties should determine whether the contract contains a lease
by assessing both of the following:

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