Myth: Exemption for Low Value Assets
One of the most common myths about the new standards is that low value assets are exempt. Watch to learn the truth about exemptions under GAAP and ASC 842.
Another myth is that there’s an exemption for low value assets. Now that is incorrect for GAAP. If you have a lease whatsoever, as long as there’s a lease it falls under the scope of 842. Once again, short term leases can be excluded from capitalization, however they still need to be disclosed in your financials, right? So they still need to be disclosed under 842. They just don’t need to be capitalized. That, once again, is for FASB. FASB has zero exemptions for local value asset.
So the argument is if you’re giving, renting, for instance, iPhones and giving them to your employees, the asset is worth … It’s a phone, so if it’s worth $300, $400, then you could say it’s a low value asset. Sure, it’s low value individually, but in the aggregate is it? Right? So essentially the exemption for low value assets does exist for IFRS. So IFRS has a $5000 limit for assets, so anything, any assets where the fair value is less than $5000, you do not need to follow IFRS 16. So that is an exemption for IFRS, but it is not for GAAP.
So for companies that have dual reporting, you need to be able to make sure that whatever system you choose, understand the difference, the delta, between IFRS and GAAP and make sure that it’s disclosing it for GAAP and excluded for IFRS, if you so choose.