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A new lease accounting standard that the Financial Accounting Standards Board (FASB) had been working on since 2009 has been finally issued! Although implementation is not required until years beginning after December 15, 2019, for privately-held companies (December 15, 2018, for public companies), it is not too early to familiarize yourself with the impact this new lease standard could have on your financial statements and internal reporting processes.
In summary, this new guidance will require companies to report most leases on their balance sheet (similar to the current method of reporting capital leases).
The following are the highlights for lessees:
1. On the balance sheet, companies will recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, for all leases longer than a year.
2. On the income statement, lease expense will fall under one of two models: For "operating" leases, total lease expense will be recorded on a straight-line basis; for "finance" leases, total lease expense will be front-loaded (similar to the current method for capital leases).
The new lease accounting standard for lessors is similar to current GAAP. The new standard does clarify a few definitions and aligns the accounting with other recently issued pronouncements, such as the new revenue recognition standard issued in 2014.
If you would like to learn more, please see the press release, FASB in Focus newsletter, and the ASU page on the FASB’s website. In addition, feel free to contact Delap to discuss how we can assist you in this transition.