![]() Any line items that represent a lease need to be accounted for under IFRS 16 or ASC 842. Once these embedded leases are identified across a contract portfolio, the Standalone Selling Price (SSP) for each component and/or performance obligation in the contract must be identified to determine how much of the revenue should be accounted for under the revenue recognition standard. The first step is to determine whether contracts contain an embedded lease, which is a lease that is hidden within a wider contract. So how should organizations think about the interaction between the standards? And private companies still have a bit more time to comply with the lease accounting standard. How to approach the interaction between lease accounting and revenue recognitionįor public companies, the effective dates for both regulations have passed but that doesn’t mean companies are not looking to refine their compliance processes to further automate and increase efficiencies. Examples of impacted companies may include organizations that sell mobile phones, set-top boxes, photocopiers, medical equipment, and vehicles. Any company which sells a bundled offering which includes granting the customer use of a physical asset may have to account under both the revenue and leasing standards for a single contract – taking each standard into account when addressing the other. Both regulations required overhauls to data, systems, and processes.īut for some organizations, the intertwining of these regulations adds an additional layer of complexity. ![]() Revenue recognition completely overhauled the way organizations account for contracts with customers and lease accounting put over $3 trillion worth of lease obligations onto the balance sheets of organizations. As standalone regulations, revenue recognition (IFRS 15 and ASC 606) and lease accounting (IFRS 16 and ASC 842) are each challenging in their own right.
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