For many years, organizations have been anticipating the implementation dates of two significant and far-reaching accounting standards: revenue recognition and leases. Many have understandably prioritized the implementation of the new revenue recognition standard, with all companies needing to comply no later than January 1, 2019. However, the deadline for complying with the new leases standard is coming into sight just a short year later and will take significant time to prepare for as well.
Accounting Standards Update (ASU) No. 2016-02, Leases, which the FASB issued back in 2016, will impact organizations across all industries that have leases and issue any type of financial statement under GAAP. But there may be more to do then you anticipated in getting ready for adoption of this new standard; if you haven’t yet assessed how it impacts your financial statements and debt covenants and haven’t yet created an implementation plan, time is of the essence.
First, become familiar with the standard, including the available implementation guidance, and seek out related training.
Next, develop an overall adoption plan:
The original standard required a modified retrospective transition approach, in which you would initially apply the new leases standard (subject to specific transition requirements and optional practical expedients) at the beginning of the earliest period presented in the financial statements (which is January 1, 2019, for calendar year-end non-public business entities that adopt the new leases standard on January 1, 2020, if comparative financial statements are presented).
Based on feedback from financial statement preparers that the required approach was too costly and complex, on July 30, 2018, the FASB issued a new ASU that allows for an optional alternative. This approach allows initial application of the new leases standard at the adoption date (such as January 1, 2020, for calendar year-end non-public business entities) and recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
Note that prospective transition is not allowed. Collaborate with your accounting service team to help you determine which transition method is preferable for your organization. Your team can also assist you with the implementation process. Don’t wait to begin planning. The sooner your implementation plan is in place, the better position your organization will be in to comply.
Please contact a member of your service team for further discussion, or a senior member of our Leases Subject Matter Expert Group: Jami Blake at firstname.lastname@example.org, Brian Fiedler at email@example.com or Lisa Metzinger at firstname.lastname@example.org.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.
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