New Lease Accounting Rules To Be Delayed
The Financial Accounting Standards Board "FASB" has proposed a one year delay in the effective date required for private companies to implement the new lease accounting rules Leases Topic 842.
Previously, as we have written before, private companies were required to adopt this new standard for fiscal years beginning after December 15, 2019.
This date will now likely be pushed to December 15, 2020.
The effective date for public companies to implement the new standard remains unchanged and is for fiscal years beginning after December 15, 2018.
The FASB has asked their internal staff members to prepare a comment letter that upon approval will be submitted to the public for a 30 day comment period. No public opposition is expected.
The one-year delay was initially requested by the American Institute of Public Accountants "AICPA".
Companies Scrambling To Meet New Lease Accounting Standards
Remember that the new Lease rules require that businesses record their long-term operating lease arrangements on the Balance sheet with a "Right-to-Use Asset" and liability recorded by calculating the present value of the lease payments at the appropriate discount rate. Many smaller businesses are still scrambling to gather documents let alone analyzing and calculating journal entries.
FASB: Reasons For The Delay
In addition to implementing the very challenging Revenue Recognition standard, the FASB cited numerous factors that led to the reconsideration of effective date for Leases Topic 842 including:
- Availability of resources
- Time required to educate staff
- Opportunity to learn from implementation issues described in large public company filings and SEC comment letters
- Application of difficult transition guidance
- Challenges in the development of IT software and system solutions, IT expertise, and effective business solutions and internal controls
What To Do In The Meantime
Even though this news may be cause for celebration, it will be short-lived. The extra time granted will certainly relieve the pressure on many businesses struggling to comply by year-end. We are urging businesses to continue to march forward by gathering lease agreements and amendments. Then implement a process to account for them either in-house using spreadsheets or externally through the use of third party software options.
If you'd like to talk to our business advisory team about preparing for the new leasing standards, we're here to help. Contact us and make good use of this extension by getting organized.
Topics: Accounting Hot Topics