ASC 842 Account For Leases Impact on Contractors
By Joseph Natarelli, National Construction Industry Group Leader
The Accounting Standards Codification 842 (ASC 842) was established by the Financial Accounting Standards Board (FASB) to improve financial reporting on leases. This standard impacts construction contractors in the following ways:
Contractors must recognize leases on the balance sheet, reflecting the rights and obligations created by lease agreements.
Operating vs. finance leases
Contractors must classify leases as either operating or finance, which impacts the way they are recognized in financial statements.
Contractors must recognize a lease liability, representing the obligation to make future lease payments.
Contractors must recognize a right-of-use (ROU) asset, representing the right to use the leased property for the lease term.
Contractors must provide extensive disclosures about their leasing activities, including information about lease terms, lease liabilities and ROU assets.
ASC 842 has significant impacts on construction contractors’ financial reporting, requiring them to recognize leases on the balance sheet and provide more disclosures about their leasing activities.