Lease accounting standards and their classification
• For IAS 17 / ASC 840 lessee and lessor leases and for IFRS 16 / ASC 842 lessor leases, classification is based on an expected transfer of ownership of the leased asset. The default classification is operating lease. If the contract's Transfer of ownership is set to Yes, the contract will be classified as a finance lease.
• For IFRS 16 / ASC 842 lessee leases, the classification is based on the duration of the lease (including 'reasonably certain' options). Leases shorter than or equal to one year, are classified as 'short term lease' (operating lease IFRS 16 and ASC 842). Leases longer than one year are classified as 'long term lease' (finance lease IFRS 16 and ASC 842).
• For ASC 842, there is an additional option: ASC 842 long term operating lease. This is a lease longer than one year but without an intention to transfer ownership.
For IFRS 16 there is an additional option to classify as an operating lease by defining the lease as low value asset (also if the duration of the lease is longer than one year).
 | GASB lessee and lessor leases are always classified as finance leases. |
Refer to the following tables for a detailed overview of the lease classification based on the classification criteria.
IFRS 16 Lessee - Operating lease | |
|---|---|
Classification criteria | Setting |
Is the (expected) lease term < 1 year | Yes |
Short term lease? | Yes |
Low value asset? | No |
FL classifying criterion 1 / 2? * | No |
IFRS 16 Lessee - Finance lease | |
|---|---|
Classification criteria | Setting |
Is the (expected) lease term < 1 year | No |
Short term lease? | No |
Low value asset? | Yes |
FL classifying criterion 1 / 2? * | Yes |
ASC 842 Lessee - Operating lease | |
|---|---|
Classification criteria | Setting |
Is the (expected) lease term < 1 year | Yes |
Does it concern an asset of specialized nature, to be used only by the lessee? | No |
FL classifying criterion 1 / 2? * | No |
Short term lease? | Yes = short term operating lease No = long term operating lease |
ASC 842 Lessee - Finance lease | |
|---|---|
Classification criteria | Setting |
Is the (expected) lease term < 1 year | No |
Does it concern an asset of specialized nature, to be used only by the lessee? | Yes |
FL classifying criterion 1 / 2? * | Yes |
IAS 17 / ASC 840 Lessee - Operating lease | |
|---|---|
Classification criteria | Setting |
Present value of lease payment > 90% of the Fair value at inception? | No |
Lease term is > 75% of the economic life of the asset? | No |
Ownership transfer at the end of lease? | No |
Bargain purchase option included? | No |
Does it concern an asset of specialized nature, to be used only by the lessee? | No |
Should fair value risks accrue to the lessee? | No |
Should the secondary lease period be substantially below market rates? | No |
FL classifying criterion 1 / 2? * | No |
IAS 17 / ASC 840 Lessee - Finance lease | |
|---|---|
Classification criteria | Setting |
Present value of lease payment > 90% of the Fair value at inception? | Yes |
Lease term is > 75% of the economic life of the asset? | Yes |
Ownership transfer at the end of lease? | Yes |
Bargain purchase option included? | Yes |
Does it concern an asset of specialized nature, to be used only by the lessee? | Yes |
Should fair value risks accrue to the lessee? | Yes |
Should the secondary lease period be substantially below market rates? | Yes |
FL classifying criterion 1 / 2? * | Yes |
IAS 17 / IFRS 16 Lessor - Operating lease | |
|---|---|
Classification criteria | Setting |
Present value of lease payment > 90% of the Fair value at inception? | No |
Lease term is > 75% of the economic life of the asset? | No |
Ownership transfer at the end of lease? | No |
Bargain purchase option included? | No |
Does it concern an asset of specialized nature, to be used only by the lessee? | No |
Should fair value risks accrue to the lessee? | No |
Should the secondary lease period be substantially below market rates? | No |
FL classifying criterion 1 / 2? * | No |
IAS 17 / IFRS 16 Lessor - Finance lease | |
|---|---|
Classification criteria | Setting |
Present value of lease payment > 90% of the Fair value at inception? | Yes |
Lease term is > 75% of the economic life of the asset? | Yes |
Ownership transfer at the end of lease? | Yes |
Bargain purchase option included? | Yes |
Does it concern an asset of specialized nature, to be used only by the lessee? | Yes |
Should fair value risks accrue to the lessee? | Yes |
Should the secondary lease period be substantially below market rates? | Yes |
FL classifying criterion 1 / 2? * | Yes |
ASC 840 / ASC 842 Lessor - Operating lease | |
|---|---|
Classification criteria | Setting |
Present value of lease payment > 90% of the Fair value at inception? | No |
Lease term is > 75% of the economic life of the asset? | No |
Ownership transfer at the end of lease? | No |
Bargain purchase option included? | No |
Does it concern an asset of specialized nature, to be used only by the lessee? | No |
Does third party exceed fair value underlying asset? | No |
Payments for lessor, to satisfy residual value guarantee? | No |
FL classifying criterion 1 / 2? * | No |
ASC 840 / ASC 842 Lessor - Finance lease | ||
|---|---|---|
Classification criteria | Setting | Remarks |
Present value of lease payment > 90% of the Fair value at inception? | Yes | |
Lease term is > 75% of the economic life of the asset? | Yes | |
Ownership transfer at the end of lease? | Yes | |
Bargain purchase option included? | Yes | |
Does it concern an asset of specialized nature, to be used only by the lessee? | Yes | |
Should fair value risks accrue to the lessee? | Yes | ASC 840 only |
Should the secondary lease period be substantially below market rates? | Yes | ASC 840 only |
Does third party exceed fair value underlying asset? | Yes | |
Payments for lessor, to satisfy residual value guarantee? | Yes | |
FL classifying criterion 1 / 2? * | Yes | |
*) FL classifying criterion 1 / 2?: additional settings to classify a lease as finance lease. The names of these two fields can be configured freely to define customer-specific classification criteria.