US GAAP Lease Accounting Guide: ASC 842 vs IFRS 16 and CAM Treatment

US GAAP Lease Accounting: The Framework

ASC 842 is the US GAAP lease accounting standard. Its core mechanics:

1. All leases over 12 months go on the balance sheet as a right-of-use (ROU) asset and lease liability
2. Operating leases (the vast majority of CRE leases) show a single straight-line lease cost on the income statement
3. Finance leases (formerly capital leases) show separate amortization and interest expense
4. Variable lease payments — including most CAM charges — are excluded from the balance sheet and expensed as incurred

This is the framework that CRE tenants in the US work within. For implementation details, see the ASC 842 lease accounting guide. For journal entry templates, see operating lease accounting entries.

ASC 842 vs IFRS 16: The Core Structural Difference

IFRS 16, issued by the IASB in 2016 (effective 2019), took a different philosophical approach: eliminate the operating/finance lease distinction for lessees entirely. Under IFRS 16, every lessee accounts for every lease (over 12 months) the same way — the way ASC 842 accounts for finance leases.

The EBITDA Distortion Under IFRS 16

This is the most consequential difference for CRE finance teams and analysts comparing US and international companies.

Under ASC 842 (operating lease): lease cost appears in operating expenses above EBITDA. EBITDA is unchanged relative to the old ASC 840 treatment for operating leases.

Under IFRS 16: depreciation of the ROU asset flows through D&A (below EBITDA or split out). Interest on the lease liability flows through interest expense (below EBIT). Neither flows through operating expenses. EBITDA is higher under IFRS 16 than it would be for the same company under ASC 842.

Concrete example:

Assume $1,200,000 annual rent ($100,000/month) on a 10-year operating lease; IBR 6%.

Initial lease liability (PV of 10 annual payments at 6%): $1,200,000 × 7.360 = $8,832,000

Under ASC 842 (US GAAP):

• Operating expenses: +$1,200,000 (single straight-line lease cost)
• D&A: no change from lease
• Interest: no change from lease
• EBITDA impact: −$1,200,000

Under IFRS 16:

• Operating expenses: +$0 from lease
• D&A: +$883,200 (ROU asset depreciation: $8,832,000 / 10 years, Year 1)
• Interest: +$529,920 (lease liability interest: $8,832,000 × 6%, Year 1)
• EBITDA impact: $0 (both D&A and interest are below EBITDA)

Same economic transaction; EBITDA differs by $1,200,000. Note: under IFRS 16, total Year 1 expense ($1,413,120) exceeds the cash payment ($1,200,000) because interest front-loads the cost — this reverses in later years as interest declines. Analysts must adjust for this when comparing companies across standards.

CAM Variable Payment Treatment — Identical Under Both Standards

Despite the structural differences, US GAAP and IFRS reach the same result for variable CAM:

ASC 842-20-30-5: Variable lease payments that do not depend on an index or rate shall be excluded from the measurement of the lease liability.

IFRS 16 paragraph 38(b): Variable lease payments not included in the measurement of the lease liability are recognized in profit or loss in the period in which the event or condition that triggers those payments occurs.

The practical accounting is the same:

Monthly CAM estimate:

DR  Variable Lease Cost / CAM Expense    [estimate]
  CR  Cash                                           [estimate]

Year-end true-up (additional charge):

DR  Variable Lease Cost / CAM Expense    [true-up amount]
  CR  Accounts Payable                              [true-up amount]

No ROU asset adjustment. No lease liability adjustment. The CAM reconciliation process is operationally identical regardless of which standard you apply.

Index-Based vs Non-Index-Based Variable Payments

One nuance: both ASC 842 and IFRS 16 distinguish between payments that vary based on an index (like CPI) and payments that vary based on performance or usage.

CPI-linked rent escalations: These are initially measured using the index at commencement. If the lease says rent increases by CPI annually, the initial liability uses the current CPI rate applied throughout the term. When the CPI adjustment actually occurs, you remeasure the liability if the payments change. This is a variable payment based on an index — it goes into the initial liability at commencement and is remeasured when the index changes.

CAM charges based on actual costs: These are variable payments not based on an index — they depend on actual annual property operating expenses. Neither standard includes these in the initial liability. They're expensed as incurred.

Practical implication: If your NNN lease has both CPI-linked rent escalations and variable CAM, you include the CPI-escalated rent in the initial liability (at the current CPI rate), but exclude the CAM. This split is the same under both ASC 842 and IFRS 16.

IBR Determination: GAAP vs IFRS

The IBR concept exists under both standards, but the definition differs slightly:

ASC 842: Rate the lessee would incur to borrow funds over a similar term, in a similar amount, with similar collateral, in the same economic environment.

IFRS 16: Rate of interest that a lessee would have to pay to borrow, over a similar term, with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.

The practical difference: IFRS 16's IBR is defined as the rate to borrow funds necessary to obtain an asset of similar value — implying the collateral is the ROU asset itself, which has value equal to the lease payments. ASC 842 speaks more generally about similar collateral in the same economic environment. The calculations often converge to the same number, but the IFRS 16 formulation can imply a slightly different collateral assumption.

For companies applying both standards, document the IBR determination under each standard separately if there's any difference.

Practical Expedients Comparison

The low-value asset exemption is IFRS 16-only. For small equipment leases (laptops, copiers), IFRS 16 companies can skip ROU recognition even if the term exceeds 12 months. Under ASC 842, there's no equivalent — you'd need to qualify for the short-term exemption.

Balance Sheet Presentation: GAAP vs IFRS

Both standards require the lease assets and liabilities on the balance sheet, but the labeling and line-item grouping differ.

ASC 842 (US GAAP):

• Requires separate presentation of operating lease ROU assets from finance lease ROU assets
• Same for liabilities (operating current, operating non-current, finance current, finance non-current)
• Can be presented on the face or in footnotes with a cross-reference

IFRS 16:

• Single "right-of-use assets" line (no operating/finance split — all leases are the same model)
• Single "lease liabilities" line (current/non-current split required)
• Companies often present ROU assets within property, plant and equipment

Disclosure Comparison

Both require:

• Lease cost by component (though components differ — GAAP separates operating from finance; IFRS shows depreciation and interest for all leases)
• Cash paid for leases
• Weighted-average remaining term
• Weighted-average discount rate
• Maturity schedule of lease liabilities

IFRS 16 additionally requires:

• Total cash outflow for leases (including short-term and low-value leases)
• Income from subleases (if applicable)
• Gains/losses on sale-leaseback transactions
• Carrying amount of ROU assets by class

ASC 842 additionally requires (for finance leases):

• Separate disclosure of amortization expense and interest expense
• Separate cash flow disclosure (principal in financing, interest in operating)

CAM Reconciliation and Cross-Border Lease Accounting

For CRE finance teams managing leases across US and international markets, the good news: the CAM reconciliation workflow is the same regardless of which accounting standard governs. Variable CAM is variable under both ASC 842 and IFRS 16.

The accounting differences are in the fixed rent treatment and income statement presentation. Focus your reconciliation review process on what matters regardless of standard:

• Is the pro-rata share calculation correct?
• Were controllable expenses subject to the contractual cap?
• Was the gross-up calculation applied correctly?
• Are any capital items being amortized through operating CAM?

These questions apply whether you're reconciling a US operating lease or a UK property lease under IFRS 16.

For the full ASC 842 implementation workflow, see the ASC 842 lease accounting guide. For a worked example with CAM payments, see ASC 842 lease accounting example.

GAAP vs IFRS Reconciliation for Dual Reporters

Companies reporting under both US GAAP and IFRS (often through SEC reporting plus IFRS statutory accounts) need a reconciliation memo. Key items:

Related Resources

• ASC 842 Lease Accounting Guide — comprehensive US GAAP implementation
• Operating Lease vs Finance Lease — dual model classification
• Operating Lease Accounting Entries — US GAAP journal entry templates
• Finance Lease Accounting ASC 842 — finance lease mechanics
• GAAP vs Cash CAM Reconciliation — timing differences in CAM recognition
• Lease Accounting Standards ASC 842 — how the standard changed CAM treatment
• CAM Reconciliation Template — start your reconciliation