Updates On The Accounting For Leases Shakes The Industry

November 4, 2019
Accountant recording lease transactions

Accounting standards are the DNA of every financial statement of every business in the US. Hence, just like DNA, a single change can affect the growth of the whole entity. For leasing standards, unfortunately, these changes are coming to light slower than expected. This is a problem confusing both lessees and lessors across the US.

Government CPAs are not free from this confusion. The Governmental Accounting Standards Board released Statement No. 87 in 2017 to supplement FASB’s accounting standards update last 2016. Unfortunately, some policies drifted away from standard methods accountants usually do. This article by Robert L. Paretta and James V. Celia discusses these changes thoroughly.

Lessee accounting for governments: An in-depth look

Following FASB’s issuance of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), in 2016, GASB issued Statement No. 87, Leases, in June 2017, to become effective for reporting periods beginning after Dec. 15, 2019.

In the United States, lease accounting standards have historically been in alignment for governmental entities and nongovernmental entities. Indeed, under National Council on Governmental Accounting (NCGA) Statement 5, Accounting and Financial Reporting Principles for Lease Agreements of State and Local Governments, governmental units were required to follow the tenets of FASB Statement No. 13, Accounting for Leases. Continue reading here

The weight of the updates on the leasing standards did not leave the attention of the Financial Accounting Standards Board. The FASB proposed delaying the effectivity of some of the changes.

The organization likewise asked for the opinion of accountants, businesses, and organizations through their website. This article in the Journal of Accountancy last October 1, 2019 discusses this topic further.

FASB proposes delay in 3 key effective dates

Certain financial statement preparers would receive the benefit of effective date delays in FASB’s accounting standards for leases, hedging, and credit losses under a proposal the board issued.

In response to preparers’ concerns about overload while implementing these three significant standards, FASB proposed amending the effective dates.

In the proposal, FASB articulates a new philosophy that would extend and simplify how effective dates for major standards are staggered between larger public companies and all other entities, including private companies, smaller public companies, not-for-profits, and employee benefit plans. Continue reading here

Nevertheless, it is essential for businesses to not spend too much pandering about the new changes to the point that it affects their operations. Thomas Faineteau tells companies to be proactive and know the lease population. He further discusses this matter in this article he published in the Journal of Accountancy last October 22, 2019.

Lease accounting: Keep pushing ahead

In February 2016, FASB issued new lease accounting requirements in Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). Under its core principle, a lessee recognizes a right-of-use (ROU) asset and a lease liability on its balance sheet for most leases, including operating leases. This is expected to have a significant impact on most entities’ balance sheets, considering how prevalent and routine leasing is to most businesses.

FASB issued the new standard to increase transparency and comparability among entities by recognizing leases on the balance sheet and providing more information about leasing arrangements so that users can assess the amount, timing, and uncertainty of cash flows from leases. Continue reading here

Leasing is one of the biggest industries around. Hence, any changes in the policies governing it will cause a ripple that will be felt by almost everyone. So, each of us must be ready once FASB decides that it is time to roll out these updates finally.