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PwC is pleased to offer our updated Leases guide. The FASB’s new standard on leases, ASC 842, is already effective for public companies and will replace today’s leases guidance for other companies in 2021. This guide discusses lessee and lessor accounting under ASC 842. The first four chapters provide an introduction and guidance on determining whether an arrangement is (or contains) a lease and how to classify and account for lease and nonlease components. This guide also discusses the modification, remeasurement, and termination of a lease, sale and leaseback transactions, leveraged lease transactions, as well as other topics. Chapters 9 and 10 address the presentation and disclosure requirements as well as the effective date and transition.
This guide summarizes the applicable accounting literature, including relevant references to and excerpts from the FASB’s Accounting Standards Codification (the Codification). It also provides our insights and perspectives, interpretative and application guidance, illustrative examples, and discussion on emerging practice issues.
This guide should be used in combination with a thorough analysis of the relevant facts and circumstances, review of the authoritative accounting literature, and appropriate professional and technical advice.
References to US GAAP
Definitions, full paragraphs, and excerpts from the FASB’s Accounting Standards Codification are clearly labelled. In some instances, guidance was cited with minor editorial modification to flow in the context of the PwC Guide. The remaining text is PwC’s original content.
References to other PwC guidance
This guide provides general and specific references to chapters in other PwC guides to assist users in finding other relevant information. References to other guides are indicated by the applicable guide abbreviation followed by the specific section number. The other PwC guides referred to in this guide, including their abbreviations, are:
  • Business combinations and noncontrolling interests (BCG)
  • Bankruptcies and liquidations (BLG)
  • Consolidation (CG)
  • Financial statement presentation (FSP)
  • Financing transactions (FG)
  • Income taxes (TX)
  • Loans and investments (LI)
  • Revenue from contracts with customers (RR)
  • Transfers and servicing of financial assets (TS)
Summary of significant changes
Following is a summary of the noteworthy revisions. Additional updates may be made to keep pace with significant developments.
Revisions made in September 2021
LG 1, Introduction
  • Figure LG 1-2 in LG 1.3 was updated to reflect the impact of ASU 2021-05 upon adoption on lessor accounting.
LG 2, Scope
  • Example LG 2-14, Example LG 2-15 and Example LG 2-16 in LG were updated to illustrate the impact of adopting ASU 2021-05 on the allocation of variable consideration between lease and nonlease components.
LG 3, Classification
  • Figure LG 3-2 in LG 3.2, LG 3.3, and Question LG 3-2 in LG 3.3 were updated to reflect the impact of ASU 2021-05 upon adoption.
  • LG was updated to clarify that public business entities may not use a risk-free rate as their incremental borrowing rate, and to describe a proposed ASU: Discount Rate for Lessees That Are Not Public Business Entities.
LG 4, Accounting for leases
LG 5, Modification and remeasurement of a lease
  • Figure LG 5-4 and Figure LG 5-5 in LG 5.3.6 were updated to reflect the impact of ASU 2021-05 upon adoption on the remeasurement of a lease for a lease modification or other event.
  • Question LG 5-7 in LG 5.8 was added to discuss the income statement recognition by a lessor for a payment made to a lessee to induce the lessee to terminate an operating lease before the end of the lease term when the payment meets the definition of initial direct cost.
LG 6, Sale and leaseback transactions
  • Former Question LG 6-2 was replaced with a new Question LG 6-2 in LG 6.3.4 to describe the accounting when the leaseback of a building is a finance lease and the leaseback of the underlying land is an operating lease in a sale and leaseback transaction involving land and building.
LG 9, Presentation and disclosure
  • LG was updated to reflect the impact of ASU 2021-05 upon adoption on lessor income statement presentation.
LG 10, Effective date and transition
This publication has been prepared for general informational purposes, and does not constitute professional advice on facts and circumstances specific to any person or entity. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The information contained in this publication was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. PricewaterhouseCoopers LLP, its members, employees, and agents shall not be responsible for any loss sustained by any person or entity that relies on the information contained in this publication. Certain aspects of this publication may be superseded as new guidance or interpretations emerge. Financial statement preparers and other users of this publication are therefore cautioned to stay abreast of and carefully evaluate subsequent authoritative and interpretative guidance.
The FASB material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856, and is reproduced with permission.

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