By Ane Ohm on April 23, 2020 at 8:00 AM
While embedded leases are not a new concept in accounting, they are now receiving a lot more attention. In the past, operating leases weren’t recorded on the balance sheet, so embedded leases were generally ignored. This practice is changing thanks to the new lease accounting standard.
Determining whether a contract contains an embedded lease can be difficult and time-consuming, particularly for those not as well-versed in lease accounting guidelines.
That’s why LeaseCrunch created a free tool to streamline the process: the Embedded Lease Identifier. This tool makes identifying potential embedded leases within contracts vastly simpler and quicker over doing so manually.
What is an embedded lease?
An embedded lease occurs when an organization has a contract with a vendor that uses an asset as part of the value provided and the use of that asset meets the definition of a lease.
The new lease standard (ASC 842) requires that organizations record all leases on the balance sheet to more fully reflect the company’s assets and liabilities.
The first step to implementing the new standard is for organizations to conduct an inventory of all their current leases, which includes any leases that may be embedded within service contracts.
The Embedded Lease Identifier tool
LeaseCrunch’s new Embedded Lease Identifier eliminates the confusion from this process.
Using the Embedded Lease Identifier is simple:
- Answer five easy questions about each contract
- Receive a definitive answer about whether the contract contains a lease or not, and why
- Use that report to demonstrate for audit purposes that each contract was evaluated, along with the result (lease or no lease).
CPA firms: Send the Embedded Lease Identifier to your clients to help them get started reviewing their lease portfolio in advance of implementing the new lease standard.