Most reporting entities must implement ASC 842/IFRS 16 in 2019. Specifically, implementation of ASC 842 is required of public entities and not-for-profit entities with marketed securities for fiscal years starting after December 15, 2018, including interim periods. (Other entities, such as private firms, need not apply it until the end of the fiscal year starting after December 15, 2020.) Earlier implementation is permitted. IFRS 16 is required effective with fiscal years starting January 1, 2019; earlier implementation is permitted as long as the entity implements IFRS 15, Revenue from Contracts with Customers, at the same time or earlier. GASB 87 takes effect for fiscal periods starting after December 15, 2019.
As originally promulgated, ASC 842 calls for restating leases under the new standard as of the start of the first comparative period for financial statements; in most cases, that means two years, so a calendar year entity would restate its leases effective January 1, 2017. However, the FASB in July 2018 released ASU 2018-11, an amendment to ASC 842 which gives users the option to transition to the new standard effective on the implementation date, with no restatement of prior years required.
IFRS users have two options to implement: 1) full retrospective implementation, meaning that all leases are recalculated from inception under IFRS 16, or 2) cumulative catch-up, in which operating leases become finance leases as of the implementation date, with the remaining rent present valued to determine the liability and asset. With full retrospective implementation, prior comparative years must be restated, but the adjustment to retained earnings for the difference between the present asset and liability is booked as of the implementation date.
GASB 87 prefers restating leases back to the first comparative year but permits a transition on the implementation date “if restatement for prior periods is not practicable.”
These leases continue essentially unchanged. It is assumed that you will want to elect the “practical expedients” in 842-10-65-1(f) or IFRS 16, to not reassess prior determinations of what is a lease and its classification. (Reassessing, if done, is inherently a manual process.) Any unamortized initial direct costs should be added to the lease asset. This is accomplished in EZLease by entering the IDC on the lease record; the IDC is not recognized until the transition date to the new standard.
Existing Operating Leases
Unless you choose full retrospective implementation for IFRS 16, all operating leases (except those with 12 months or less remaining at the transition date) are capitalized, at the Lessee's incremental borrowing rate as of the transition date. Under ASC 842, executory costs are recognized based on the FAS 13 definition and are not capitalized, so it is beneficial to enter any executory costs into existing operating leases. IFRS 16 does not permit executory cost recognition but implements the new components definition for rent. Any deferred rent liability (or asset) is applied to the new Right-of-Use asset, along with any unamortized initial direct costs.
To update existing leases in EZLease for the transition, you can either enter the incremental borrowing rate, executory costs, and initial direct costs onto the record for each individual lease, or you can make mass changes using the New Standard Update function on the File menu, which provides spreadsheet upload for changes by lease, setting the transition incremental borrowing rate or low-value flag for groups of leases, and classifying leases for ASC 842/IFRS 16/GASB 87 purposes. Reports run using the new standard will not provide results until leases are classified for the new standard.