FinancialsBy Derrel Curry, CPA, CGMA

$640 Billion. 

$956 Billion. 

$1.5 Trillion.

These numbers are published estimates of the cumulative Balance Sheet impact of the revised lease accounting standards.  They could be low.

The long-awaited revision to lease accounting was issued by the Financial Accounting Standards Board (FASB) on February 25, 2016.  This followed the release of a similar standard by the International Accounting Standards Board (IASB) on January 13, 2016.  The standards have conceptually similar objectives but are not identical.

A major objective of the FASB revision is to eliminate a major source of off balance sheet financing for lessees and, thereby, increase transparency.  Therefore, lessees will experience the most significant direct impact of the revision.  Lessors will experience a more indirect impact of the revision.

Leases that qualified as Operating under the existing guidance have been disclosed in financial statement footnotes but not reflected on corporate Balance Sheets.  This fact was the major distinguishing factor of an Operating lease versus a Capital lease.  Under the revised accounting standard, lessees will need to recognize a right-to-use asset and a lease liability for leases with lease terms of more than 12 months.

A significant aspect of this revision is the effective date and transition provisions.  For private companies, the standard is effective for fiscal years beginning after December 15, 2019 (calendar 2020).  Early adoption is permitted.  Transition will require application of the new guidance at the beginning of the earliest comparative period presented.  The “trap” of these seemingly generous application dates may occur if companies and management shuffle this item to the “back burner.”  The reason for the application dates is for companies and their management to assess the impact, sufficiently plan for implementation, consider the guidance when negotiating any new leases and even potentially renegotiate any existing leases.

Stay tuned for more information in our BMSS publications and on our website.  Please let your BMSS team know how we can assist you.



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