Overview
You can no longer have a modification effective date that's the same as the commencement of the lease.
You can select a later effective date or recognize the input within Initial Recognition
You can watch the video to see the explanation:
Video length: 1 minute
Alternatively, you can see the explanation below.
If you enter a modification with an effective date matching the commencement date, an error message will appear:
Why can’t I put the date effective as the same date as the commencement date/transition date?
That is because that is a non-sensical input. If a modification is known at the start of the lease, it should be accounted for as part of the initial recognition, not as a future change to the lease. In such cases, it does not qualify as a modification under lease accounting principles.
For a detailed explanation of lease modifications, ASC 842 users can refer to the definition and guidance in ASC 842-10-25-11, as outlined on page 367 of the Deloitte ASC 842 guide. IFRS 16 users should review the definition and explanation provided in paragraphs 44 to 46 of the IFRS 16 Standard.
Note for Existing Users
Previously, it was possible to enter a modification with an effective date that matched the commencement date. However, this measure has been updated, and modifications with such effective dates are no longer allowed.
If you attempt to edit a previously entered modification with an effective date matching the commencement date, you will receive an error message.
To proceed, please select a different effective date for the modification or review the initial recognition. This will help determine if the modification should have been recognized as part of the initial lease recognition instead.
For more guidance on setting up the effective date, please refer to this help article.
FAQs:
What Inputs Should Be Included in Initial Recognition? Initial recognition should encompass all known lease payments and the lease term based on the information available at the commencement date. FFor detailed guidance, ASC 842 users can refer to ASC 842-20-30-1 through ASC 842-20-30-6, while IFRS 16 users should consult IFRS 16 paragraphs 23–28.
Further Reading: