When is Equity affected under ASC 842?

Under ASC 842, the equity account Cumulative Effect on Change in Accounting Principle is rarely affected. This concept is causing confusion among accountants who are accustomed to new accounting standards using the account. Under the new lease accounting standards, all adjustments are made through the ROU Asset as part of the initial journal entry, provided by LeaseCrunch.

There are a few scenarios in which Equity could be affected. 

1. Initial direct costs. If a client chooses to reassess leases by not electing the practical expedient, the definition of initial direct costs has now changed and, as a result, their opening entry might affect equity.
2. Hindsight for impairment or lease term. If your client does elect the practical expedient to use hindsight on impairment or lease term of a leased asset, it may affect their equity.
3. Operating lease transition under IFRS 16. Under IFRS 16, there are two options to determine the ROU Asset for what were operating leases. One option is consistent with ASC 842 and would not affect equity. Another option measures the ROU Asset as if IFRS 16 was applied at the lease commencement date. The journal entry for this option (including the new lease liability and removal of existing balances under IAS 17), would include an entry to equity.
4. Other scenarios that could affect equity. Built-to-suit arrangements, currency translation differences, and sale-leaseback transactions can also affect equity.

Within LeaseCrunch all adjustments are made as part of the existing balances through the ROU Asset when the initial journal entry is booked.