On May 18, 2018, Scott T. Wallace, CPA presented to the Accounting & Financial Women’s Alliance (AFWA) on new lease accounting and revenue recognition standards. Scott provided details about upcoming changes and offered guidance for planning.
According to the Financial Accounting Standards Board (FASB), the new standard will require organizations that lease assets, referred to as “lessees,” to recognize on the balance sheet assets and liabilities for the rights and obligations created by those leases. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current Generally Accepted Accounting Principles (GAAP), the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. Unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, the new Accounting Standards Update (ASU) requires both types of leases to be recognized on the balance sheet.
WHO WILL BE AFFECTED BY THE NEW GUIDANCE?
Leasing is an important activity for many organizations, including public and private companies, along with non-profits. Leasing creates access to assets, assists in financing, and reduces an organization’s exposure to risks of full ownership of the underlying asset.
ASU affects all companies and other organizations that lease assets such as real estate, airplanes, ships, and construction and manufacturing equipment.
WHEN WILL THE FINAL ACCOUNTING STANDARDS UPDATE BE EFFECTIVE?
For public companies, the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Thus, for a calendar year company, it would be effective January 1, 2019.
For all other organizations, the ASU is effective for fiscal years beginning after December 15, 2019 and for interim periods within fiscal years beginning after December 15, 2020.
For additional details, visit FASB. Contact us for guidance and planning.