In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Public entities must apply Topic 842 to annual reporting periods beginning after December 15, 2018, including interim reporting periods within that reporting period. ¹³ Earlier application is permitted.

All other entities, including EGCs that have appropriately elected to defer compliance with new or revised financial accounting standards until a company that is not an issuer (as defined under section 2(a) of the Sarbanes-Oxley Act of 2002) is required to apply such standards, must apply Topic 842 to annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. ASU No. 2020-05 further delayed adoption of ASC 842 for all other entities for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Earlier application is permitted.

The IASB also issued IFRS 16, Leases, in February 2016. For most companies, the effective date will be the same as under U.S. GAAP.

Companies will transition to Topic 842 using a modified retrospective approach where they will recognize and measure all leases within the scope of the standard that exist as of the beginning of the earliest comparative period presented. The entity will adjust equity at the beginning of the earliest comparative period presented as if the standard had always been applied, subject to certain practical expedients and other transition relief prescribed by the standard.