Simple Embedded Leases Checklist for Non-Accountants
We prepared this checklist to help non-accounting employees working with legal agreements identify contracts with potential embedded leases that require further evaluation.
Lease accounting should not always be complicated. We prepared this checklist to help non-accounting employees working with legal agreements identify contracts with potential embedded leases that require further evaluation by the accounting department under FASB ASC 842.
Checklist
Definition: “A contract is, or contains, a lease if it conveys the right to control the use of a specified asset over a period in exchange for consideration.”
Share support if you see any of the following in the contract:
The contract extends for a period of >1 month
An amount payable to a vendor above your capitalization threshold
Certain tangible assets (real estate or personal property) owned by another party are specifically identified in the agreement
The agreement includes any of the following indicators:
The company's right to operate an asset or to instruct another party how and for what purpose to use an asset, or
The customer's right to occupy the property, or
Restrictions on the use of an asset by another party, which were placed on by the Company, or
Assets that were designed by the Company or contain any branded signage or design elements.
Examples of contracts that may include embedded lease arrangements:
Advertisement on a specifically identifiable billboard(s)
IT or outsourcing service with dedicated servers, IT, and/or telecommunication equipment
Transportation and delivery services on specified vehicles
Complex service contracts with specified equipment units
Contract manufacturing arrangements (dedicated tooling)
Power purchase agreements (dedicated capacities of power plants)
Joint operating agreements
Cable and satellite (set-top boxes)