Short-Term Lease Exemption
Related terms
Category
ASC 842
The short-term lease exemption under ASC 842 allows lessees to elect not to recognize right-of-use assets and lease liabilities for leases with a term of 12 months or less at commencement. The exemption is an accounting policy election applied by asset class.
Why it matters
The short-term lease exemption is a practical relief that reduces the compliance burden for leases with terms of 12 months or less. When elected, these leases are simply expensed on a straight-line basis with no balance sheet recognition required. However, the election must be applied consistently by asset class and the lease must not contain a purchase option that the lessee is reasonably certain to exercise.
Companies must carefully evaluate whether month-to-month leases with a practice of renewal actually qualify for the exemption. If renewal is reasonably certain, the total expected term may exceed 12 months.
How Arvexi handles this
Arvexi identifies leases eligible for the short-term exemption based on term analysis and flags them for policy election. When the exemption is elected, the platform applies straight-line expense recognition without balance sheet entries, while maintaining disclosure tracking for the aggregate short-term lease expense.