ASC 842 Transition Guide

Transitioning to ASC 842 for Nonpublic Entities

by | Feb 22, 2022 | Articles, ASC 842, Lease Accounting

This article, "Transitioning to ASC 842 for Nonpublic Entities," originally appeared on

Summary provided by Do you need help adopting ASC 842? The article below provides information about transition requirements the practical expedients available that may help with transition.


ASC 842, Leases became effective for public entities for fiscal years beginning after December 15, 2018. While it has been three years now under ASC 842 for public companies, private companies are in the midst of implementing and transitioning to the new lease accounting guidance. ASC 842 is effective for private companies for fiscal years beginning on or after December 15, 2021. So, for private companies with calendar year-ends, it became effective beginning January 1st of this year.

We have previously written about three practical expedients to help when applying the new guidance which you can read here: Private Companies: 3 Practical Expedients to Ease Your ASC 842 Journey. In this post, we will take a closer look at the transition requirements of ASC 842 and the practical expedients available that may help with transition.

ASC 842 Transition Requirements

A modified retrospective approach is required to be used when implementing ASC 842 with the transition provisions applied at one of the following application dates:

  • The later of the beginning of the earliest period presented in the financial statements and the commencement date of the lease, or
  • The beginning of the period of adoption.

Transition accounting is required for all leases that existed at, or were entered into after, the date of initial application. It is not required for leases that expired prior to the date of initial application.

Transition Practical Expedients

To alleviate some of the complexity and/or costs of the transition to the new lease accounting guidance, ASC 842 includes a number of optional transition practical expedients. If any of the practical expedients are elected by an entity, that fact must be disclosed. A summary of the transition practical expedients are as follows:

Package of practical expedients

On transition, an entity may elect not to reassess:

  • Whether expired or existing contracts contain leases under the new definition of a lease
  • Lease classification for expired or existing leases
  • Whether previously capitalized initial direct costs would qualify for capitalization under ASC 842

The above practical expedients MUST be elected as a package. In other words, if an entity elects any of the transition relief above, it is required to elect all three of the relief provisions. Additionally, this practical expedient cannot be applied on a lease-by-lease basis, rather, it must be applied consistently to all of the entity’s leases (i.e., those for which the entity is a lessee or a lessor).

Use of hindsight practical expedient

An entity may use hindsight:

  • In determining the lease term (i.e., evaluating a lessee’s option to renew or terminate the lease or to purchase the underlying asset)), and
  • For lessees, in assessing the impairment of the right-of-use assets

The use of the hindsight practical expedient may be elected separately or together with the package of practical expedients, the land easements practical expedient, or both. If elected by an entity, it must be applied consistently to all of its leases.

Land easements practical expedient

Land easements represent the right to use, access, or cross another entity’s land for a specified purpose. Under the land easements practical expedient, an entity may elect to not evaluate under ASC 842, existing or expired land easements that were not previously accounted for as leases under ASC 840. This practical expedient may be elected separately or together with the package of practical expedients, the use of hindsight practical expedient, or both. It also must be applied consistently by an entity to all its existing and expired land easements that were not previously accounted for as leases under Topic 840.

The good news is the end is in sight for adoption and transition to ASC 842 by private companies. That being said, we all know that the accounting issues, confusion, and learning that comes with a new standard doesn’t stop with adoption. We are here to help! If you need further training on accounting for leases under ASC 842, we have a collection of four lease accounting eLearning courses that includes an overview of ASC 842, lessee accounting, lessor accounting, and accounting for changes after the commencement date.

About GAAP Dynamics

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This post is published to spread the love of GAAP and provided for informational purposes only. Although we are CPAs and have made every effort to ensure the factual accuracy of the post as of the date it was published, we are not responsible for your ultimate compliance with accounting or auditing standards and you agree not to hold us responsible for such. In addition, we take no responsibility for updating old posts, but may do so from time to time.

ASC 842 Transition Guide

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ASC 842 Transition Guide