Article
Navigate lease accounting changes to boost agribusiness compliance and strategy
Nov. 9, 2021 · Authored by K-deep Dhaliwal, Doug Armstrong
This article updated Jan. 30, 2025.
Since the Financial Accounting Standards Board (FASB) Accounting Standards Codification® (ASC) Topic 842, Leases, became effective for private companies for fiscal years beginning after Dec. 15, 2021, agribusiness entities have had complexities to navigate.
ASC 842 has significantly changed how agribusinesses account for leasing activities, bringing more transparency — and more complexity — to financial reporting. Companies must continue to evaluate their lease contracts and related accounting practices to improve compliance and financial strategies.
Overview of lessee accounting for leases under ASC 842
ASC 842 was designed to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.
The standard requires lessees to recognize nearly all leases, including both finance and operating leases, on the balance sheet. Lessees recognize a right-of-use (ROU) asset and a lease liability initially measured at the present value of lease payments.
For leases with a term of 12 months or less, lessees can elect not to recognize ROU assets and lease liabilities but must recognize lease expense on a straight-line basis over the lease term.
Observations in agribusiness post-ASC 842 implementation
The following observations outline the most notable impacts on agribusiness.
Variable consideration in leases
Agribusiness companies often engage in leases with variable payments, such as crop-share arrangements where payments to lessors are based on the output or price of the crop. Under ASC 842, variable lease payments that depend on an index or a rate initially measure the lease liability.
However, variable payments that aren’t tied to an index or rate are excluded from the lease liability measurement and are recognized in the period in which the obligation for those payments is incurred.
