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IFRS 16 Leases contains detailed guidance on how to account for lease modifications. A lease modification is defined as a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease.

(b) A lessee would reassess variable lease payments that depend on an index or a rate only when it is reassessing the lease liability for other reasons (for example, when there is a change to the lease term upon the occurrence of a significant event or a significant change in circumstances within the control of the ...

A change in the lease term or the assessment of whether the lessee will exercise an option to purchase the underlying asset and the discount rate for the lease already reflects that the lessee has an option to extend or terminate the lease or to purchase the underlying asset.

A lessee is required to reassess lease terms if a triggering event occurs that is within the lessee's control or affects the likelihood of option exercise. Per guidance under ASC 842-10-15-36, a lessee shall remeasure and reallocate the consideration in a contract.

Under the new standard, lessees are required to account operating leases with terms longer than 12 months on the balance sheet, resulting in the recognition of a right-of-use asset and the corresponding liability.

Transition Method ASC 842 can be adopted using a modified retrospective approach OR the transition method. Under the modified retrospective approach, an entity can reflect the impact of initially applying ASC 842 as of either (a) the beginning of the year of adoption or (b) the earliest comparative period presented.

Lease accounting under ASC 842 requires remeasurements when the event involves more than just a renegotiation of lease terms but also conditions including changes in the lessee's facts, assumptions or other circumstances. Companies should first evaluate if the contract modification contains a lease.