Crunchafi

What is my Initial Application Date under ASC 842?

The Initial Application Date under ASC 842 is the start of the earliest financial reporting period to which a lessee first applies the lease standard, determined by the company's Effective Date (fiscal years after December 15, 2018 for public/international companies and after December 15, 2021 for private companies) and whether the lessee applies the standard retrospectively to all periods presented or only to the most recent period without restatement, with examples illustrating how this date varies based on fiscal year-end and chosen application method.

Initial Application Date under ASC 842

The Initial Application Date is the beginning of the earliest period presented in the financial statements in which the lease standard is first applied. The lessee will apply the lease standard either to all reporting periods presented in the financial statements or to only the most recent period, without restating prior periods.

To select your Initial Application Date, you must first determine your Effective Date:

  • U.S. public companies and international companies (under IFRS 16) have an Effective Date for fiscal years beginning after December 15, 2018.
  • U.S. private companies have an Effective Date for fiscal years beginning after December 15, 2021.

For organizations transitioning from other solutions at a date after 1/1/22, the Initial Application Date will likely be the beginning of your current fiscal year.

Examples

  • If lessees have a 12/31 fiscal year end and are choosing to apply the lease standard to only the most recent period without restating prior periods, the Initial Application Date will be 1/1/22. (Effective Date Method)
  • If lessees have a 12/31 fiscal year end and are choosing to apply the lease standard retrospectively to all prior reporting periods with the cumulative impact reported in retained earnings in the first year presented, the Initial Application Date will be the first of the earliest fiscal year presented. (Comparative Method)
  • If lessees have a 6/30 fiscal year end and are choosing to apply the lease standard to only the most recent period without restating prior periods, the Initial Application Date will be 7/1/22. (Effective Date Method)
  • If lessees have a 6/30 fiscal year end and are choosing to apply the lease standard retrospectively to all prior reporting periods with the cumulative impact reported in retained earnings in the first year presented, the Initial Application Date will be the first of the earliest fiscal year presented. (Comparative Method)

Items of Note

  • The Initial Application Date is not the start date of your earliest lease.
  • The Initial Application Date under FASB ASC 842 is generally not prior to 2022 for non-public entities.

Transferring Your Lease Accounting from Another Solution

Organizations need to determine if they will transition as of their original ASC 842 effective date or if they will use the current fiscal year.

  • Using the original ASC 842 effective date may result in balance differences due to differing Present Value methodologies. These differences are usually small and a current year adjustment can bring the Crunchafi balances into Financial Statement alignment.
  • Using the current year will allow for all balances to be brought into the software as transition leases.