FASB Delays Effective Date for Lease Accounting Standards

The Financial Accounting Standards Board announced plans to delay the effective date for the new standard on accounting for leases for certain entities. This is great news for private companies, non-profit organizations, and smaller reporting companies lagging in adoption of the leasing standard updates. It seems FASB underestimated the time and resources needed for tracking and recording the leases. Even the AICPA pointed out the failure of software companies to create comprehensive lease solutions, and the time constraints it was putting on the financial statement preparation process.

FASB’s new standard on accounting for leases aims to provide investors with a clearer picture of what companies across all industries owe through their lease obligations — including those for equipment and real estate.

Private companies, not-for-profit organizations, and smaller reporting companies had been scheduled to adopt the leasing changes in the 2020 calendar year. Under the proposed changes, they will adopt those standards in the 2021 calendar year.

Some guidelines to consider that might make the process smoother:

• Leases may be buried in different types of contracts and aren’t always labeled as such;
• Leases may be buried in different types of documents across several offices and locations;
• Keep track of critical dates, payment amounts and other relevant information about the right of use that a contract conveys;
• Managers should use judgement when determining the appropriate discount rate and fair market value of a leased asset; and
• More data and calculations may be needed to produce the appropriate journal entries and disclosures, as well as incremental borrowing rate or IBR.

• Track new contracts being signed as well as outsourcing and service agreements that may have embedded lease assets;
• Monitor new sub-leases and sale/leaseback transactions found in real estate portfolios;
• Track changes to leases that might impact the number of equipment assets on a lease or the amount of floor space being rented;
• Monitor leasehold improvements, potential impairments, and sublease extensions;
• Track expiring leases and whether equipment is returned, purchased, or the lease renewed with different rent and contract terms;
• Track if real estate leases are terminated or renewed with a rent change, and/or change in amount of floor space.