ASC 840 to 842 Lessee Transition Options

Lessees must adopt ASC 842 using a modified retrospective transition approach. Reporting entities may elect to apply the transition approach either (a) as of the beginning of the earliest period presented in the financial statements – in which case it would adjust its comparative periods or (b) as of the beginning of the period of adoption – in which case it would not adjust its comparative periods as denoted below:

• Comparative Option: An entity can elect to apply the new lease standard at the beginning of the earliest period presented, and recognize a cumulative effect adjustment to the opening balance of equity in that period. This approach will result in any leases existing at, or entered into after, the beginning of the earliest period presented being reported in accordance with ASC 842.
• Effective Date Option: An entity can elect to apply the new lease standard at the effective date and recognize a cumulative effect adjustment to the opening balance of equity in the period of adoption. If an entity elects this option, the reporting for comparative periods presented in the financial statements will continue to be in accordance with legacy GAAP. 

Accounting Guidance Referenced:

• ASC 842-10 65-1

• PwC Leases October 2020 1.5