Part 1: New Lease Accounting –IFRS 16 Leases Effect Analysis. Identify differences between IFRS 16 and U.S. GAAP new lease accounting (ASC Topic 842). Based on these differences, discuss which one (IFRS or U.S. GAAP) you favor and why? Discuss three main features of the two transition methods for lessees under ASC 842 and IFRS 16. Which transition method would investors likely prefer? Why? Which transition method may be preferred by companies? Why?
Part 1: New Lease Accounting –IFRS 16 Leases Effect Analysis.
- Identify differences between IFRS 16 and U.S. GAAP new lease accounting (ASC Topic 842). Based on these differences, discuss which one (IFRS or U.S. GAAP) you favor and why?
- Discuss three main features of the two transition methods for lessees under ASC 842 and IFRS 16. Which transition method would investors likely prefer? Why? Which transition method may be preferred by companies? Why?
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Difference between IFRS and ASC 842:
Difference based on lease classification:
Under IFRS 16, single lessee accounting model is used which is similar to that of finance leases under current IAS 17. Thus, from the view point of income statement, the IFRS model considers all leases as financial arrangement.
Under US GAAP (ASC 842), the leases classified as finance leases are categorised as financial arrangements from the view point of income statement, on the other hand the lessee records the asset and liabilities related to all leases on its balance sheet like IFRS, the day two for operating leases usually continue to produce a straight-line total lease expense.
Difference based on re-measurement of leases:
In IFRS, the liabilities are re-measured each year to denote the current consumer price index (CPI) due to which the liabilities under IFRS grows prominently greater than the liability under US GAAP.
In Under US GAAP (ASC 842), the liability is not re-measured as per the changes in the current consumer price index (CPI) until re-measurement is needed or additional payments are recognized.
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