P Entities other than public business entities are required to adopt ASC 842 in annual reporting periods beginning after December 15, 2021 and interim periods within annual reporting periods beginning after December 15, 2022. Earlier application is permitted.

The leases standard is required to be applied to leases in existence as of the date of initial application using a modified retrospective transition approach; a full retrospective transition approach is not permitted. Reporting entities may elect to apply the transition approach either (a) as of the beginning of the earliest period presented in the financial statements – in which case it would adjust its comparative periods or (b) as of the beginning of the period of adoption – in which case it would not adjust its comparative periods.

The transition guidance includes optional provisions intended to reduce the burden of the implementation of the leases standard. Most significantly, the classification of existing leases and whether an arrangement contains a lease do not need to be reassessed. However, the relief provisions can only be adopted as a package. That is, a reporting entity cannot elect to reassess whether an existing arrangement contains a lease upon transition, but at the same time not reassess classification of existing leases. Lessees may also apply hindsight with respect to judgments around lease renewal options and purchase options.

As a result, lessees and lessors may generally carryforward their existing accounting balances when adopting the new guidance. See LG 9 for additional information about transition and the effective date of the leases standard.

Finally, transferors and transferees of easements and rights-of-way that had not previously accounted for such rights as leases (due, in part, to ambiguous accounting guidance), may continue to account for those existing arrangements as they had, until such arrangements are modified. The easements entered into or modified on or after the effective date must be evaluated under ASC 842. See LG 2.3.2.1 for additional information about evaluating easements.