When it comes to the new FASB lease accounting standards, companies are in the middle of the storm.
And while most everyone knows that they must “get compliant”, there is still a fog regarding:
- who the updates affect
- what this all really means
- what must be done by when
- how to handle the massive effort of compiling all the lease data
We’ve attempted to answer some of these questions by outlining the four W’s of lease accounting.
1. Who Is Affected?
All Public & Private Companies - In February 2016, the Financial Accounting Standards Board (FASB) (governing the United States) and the International Accounting Standards Board (IASB) released the ﬁnal version of their lease accounting standards and associated reporting. The updates will impact publicly held companies in 2019, and privately held companies in 2020.
2. What Does It All Mean?
Lessees and Lessors will be required to record leased assets including both real estate and equipment on the balance sheet as both liabilities and right of use assets (ROU). The changes are part of a multi-year effort to align U.S. standards with global accounting standards, increasing the transparency of off-balance sheet obligations.
3. Weathering the Storm
Companies are beyond gathering the data required for calculating the new balance sheet entries; however, most are still struggling to understand the requirements. Have no fear! With appropriate planning and the proper technology solution, the entire process should be able to be completed in months.
4. Wrangling the Data
An established application, like ours, is ready to calculate the required balance sheet entries and will be the most effective in negotiating optimal lease terms to minimize the impact on your balance sheet. The right tool will be a trusted partner in helping to deﬁne new ways to structure the base rental rate, rent increase timeframes, pull out expenses, and focus on expansion rights over lease renewals.