Lease accounting reset - Embedded leases

PwC's accounting podcast

We continue our lease accounting podcast miniseries with an episode focused on embedded leases. Some arrangements to provide services or purchase inventory rely on the use of a specific asset to fulfill the contract. Even if the word “lease” doesn’t appear, the rights conveyed to the customer may still meet the definition of a lease—shifting the transaction from simply purchasing services or goods to leasing an asset. We explain why identifying an embedded lease is critical and how it can significantly impact the accounting and financial reporting for both customers and suppliers.

In this episode, we discuss:

• 1:40 – An overview of embedded leases and common arrangements
• 6:50 – Determining whether an arrangement contains a lease
• 24:07 – Allocating contract consideration to lease and nonlease components
• 34:19 – Available practical expedients
• 39:01 – Accounting and reporting implications

For more information, see chapter 2 of our Leases guide and chapter 4 and 5 of our Revenue from contracts with customers guide. You can also listen to the other episodes in this series:

• Lease accounting reset - Presentation and disclosure
• Lease accounting reset - Modifications and terminations
• Lease accounting reset – Variable rents

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About our guests

Marc Jerusalem is a PwC National Office managing director specializing in leasing. Marc consults with clients on complex lease accounting issues and is a frequent contributor to many related PwC National Office publications.

Pat Durbin is a PwC National Office Deputy Chief Accountant. He has over 30 years of experience consulting with our clients and engagement teams on complex accounting matters, including issues related to revenue, compensation, income taxes, and inventory under both US GAAP and IFRS.

About our guest host

Guest host Diana Stoltzfus is a partner in the National Office who helps to shape PwC’s perspectives on regulatory matters, responses to rulemakings and policy development, and implementation related to significant new rules and regulations. Prior to rejoining PwC, Diana was the Deputy Chief Accountant in the Office of the Chief Accountant (OCA) at the SEC where she led the activities of the OCA’s Professional Practices Group.

Transcripts available upon request for individuals who may need a disability-related accommodation. Please send requests to [email protected]

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챕터

1. Lease accounting reset - Embedded leases (00:00:00)

2. An overview of embedded leases and common arrangements (00:01:40)

3. Determining whether an arrangement contains a lease (00:06:50)

4. Allocating contract consideration to lease and nonlease components (00:24:07)

5. Available practical expedients (00:34:19)

6. Accounting and reporting implications (00:39:01)