Theory and Practice
Under ASC 842 and IFRS 16, expense recognition is decoupled from the timing of lease payments. Instead, expenses arise from two distinct mechanisms:
Interest accretion on the lease liability, reflecting the time value of money; and
Depreciation (or amortization) of the right‑of‑use asset, reflecting consumption of the leased economic resource.
Under IFRS 16, these components are presented separately as interest expense and depreciation expense. Under US GAAP, operating leases are presented as a single lease expense in the statement of profit or loss. However, this single expense is still derived mechanically from the same interest and depreciation calculations performed within the lease accounting model (FASB, 2016b).
Crucially, the timing of these expenses is driven by the systematic posting of lease accounting entries by accounting period, not by when lease payments are made. As long as lease accounting is processed in line with the entity’s accounting periods, the consumption of the leased asset is automatically matched to those periods.