According to ASC 842, a lease is defined as:

“A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.”

This may seem straightforward, but most leases contain clauses and subclauses that must be examined more closely under ASC 842. For example, to be an identified asset, the contract may not permit the substitution of one asset for another asset if the substitution benefits the supplier. (This rule may be especially relevant during this time of supply shortages.)

The following guidelines offer a list of contract elements that must be reviewed. To learn more, download this Construction Issue Sheet.