15.1 Background and Objective

Although disclosure requirements were also a critical aspect of ASC 840, users believed that the information presented was often inadequate. ASC 842 therefore contains expanded disclosure requirements that are significantly more comprehensive than those in ASC 840. Accordingly, as with disclosures under the FASB’s revenue recognition standard, disclosures about an entity’s leasing transactions are likely to increase under the leasing requirements in ASC 842 even though they may have decreased in many other areas of accounting (e.g., pensions, stock compensation, fair value, and income taxes) because of the Board’s recent focus on reducing disclosure overload (i.e., making disclosures more effective and coordinated and less redundant).

The Board has therefore emphasized that entities need to remain focused on the underlying disclosure objective so that they avoid obscuring useful information by providing extraneous detail or losing relevance by furnishing significantly aggregated information. Further, a “one-size-fits-all” approach would be inconsistent with the disclosure objective of ASC 842; thus, to meet this objective, it is critical that an entity use significant judgment and evaluate these requirements against its own leasing activities.

Throughout ASC 842, the FASB consistently uses the word “shall” to indicate that an entity would generally be required to provide a specific disclosure. However, in paragraph BC276 of ASU 2016-02, the FASB acknowledges that an entity needs to consider both relevance and materiality when determining which disclosures to provide:

For example, a lessee would most likely not discuss judgments and assumptions used to allocate consideration in a contract between lease and nonlease components if there are no nonlease components or if management concludes that the quantitative and qualitative impact of the disclosure requirement is immaterial. However, as with other materiality assessments, entities should carefully consider whether the omission of a required disclosure represents an error. Entities are encouraged to consult with their financial advisers when making such determinations.

Further, while the disclosures specified in ASC 842 are generally viewed as mandatory, how an entity complies with these disclosure requirements may vary significantly. An entity should assess which disclosures need to be provided for each reporting period since a disclosure deemed irrelevant or immaterial in previous reporting periods may subsequently become material (e.g., as a result of increases in the monetary values to be disclosed or changes in qualitative factors).

Although the SEC staff has thus far issued relatively few comments on the application of ASC 842, the staff has made certain observations related to this topic. For example, registrants have received comments on (1) how ASC 842 applies or does not apply in certain arrangements and (2) the discount rate used to calculate the amount of the lease liability and corresponding ROU asset. Other topics addressed in SEC staff comments on ASC 842 include, but are not limited to, the nature of expenses treated as initial direct costs; the determination of lease classification; accounting for leasehold improvements, including amortization; and impairment considerations related to ROU assets. For further details about the staff’s observations on each of these topics, see Deloitte’s Roadmap SEC Comment Letter Considerations, Including Industry Insights.

As regulators review disclosures and issue comments, entities should evaluate their peers’ filings and look for opportunities to improve existing disclosures. We encourage such continual improvement and remind preparers to focus on the disclosure objective stated above.

This chapter is divided into the following overall subsections:

• 15.2 Lessee Disclosure Requirements.
• 15.3 Lessor Disclosure Requirements.
• 15.4 Sale-and-Leaseback Transactions.
• 15.5 Annual and Interim Disclosures.