This article focuses on four critical 2021 developments in lease accounting conventional implementation and what accounting industry experts need to share with customers that will be most impacted.
For the sake of track record, the Fiscal Accounting Specifications Board (FASB) very last year voted to suggest a just one-year deferral of major accounting specifications, including ASC 842. This proposal would allow non-public businesses an supplemental year, on prime of the initial delay that went into effect Oct 2019, to undertake the lease accounting common in their monetary statements. General public not-for-revenue organizations that have not but issued financial statements would also be granted an extension.
Here’s what’s coming:
1. We Will Have a New Lease Normal Helpful in 2022
Many have been inquiring if the new lease regular will finally be carried out for non-public companies in 2022. In May 2020, the FASB accredited postponing the new lease regular implementation day for non-community companies to fiscal many years starting immediately after December 15, 2021. This arrives after a 2019 choice to delay as effectively.
I am self-confident that we will have a new lease common successful in 2022. With ASC 842 applied for community organizations, financial-assertion end users will need non-public adoption for comparability functions. At the September 2020 FASB roundtable, all contributors agreed that major alterations to the lease standard are pointless, whilst larger clarity and flexibility on certain matters would be valuable.
2. Sifting By New FASB Guidance
Irrespective of these delays, the FASB is however concentrated on easing the changeover and eventually obtaining comparability. The FASB commenced holding roundtables to collect responses from the preparers, reviewers and customers of economical statements. Participants have expressed that they really do not want to overhaul the full lease standard, as an alternative, they want more clarity and versatility all-around difficulties like analyzing the price cut amount or modifying lease terms.
The FASB has taken the feed-back and has started to update their steering accordingly. The latest modifications mirror how the FASB is working with this time for the duration of the delay to pay attention to concerns from general public firms even though accomplishing whichever they can to make sure a thriving non-community implementation.
At the December 2020 FASB Board assembly, associates mentioned a continued willingness to issue more steerage. Probable subject areas involve location price cut rate procedures by asset course and amending the danger-absolutely free charge useful expedient to some thing extra agent, like AAA bond ratings. Supplying business-specific education was also talked about, with the acknowledgement that this will turn into additional applicable and desirable as the implementation day approaches.
3. COVID-19 and FASB Lease Accounting Guidance
In my conversations with CPA companies, I’ve listened to a great deal about how they assume to deal with lease revisions for the subsequent several decades. Even when the pandemic ends, the way we operate has very likely adjusted eternally. Organizations know they really do not require the true estate and tools they considered they did. This has now made a ton of do the job all over lease revisions.
Fortunately, the FASB issued guidance early on to aid relieve some strain close to these changes. For occasion, if a customer necessary to transform a lease because of to the coronavirus—like a landlord offering short-term lease aid whilst their business enterprise was non-operational—this can be thought of a lease concession rather than going by an extensive analysis to decide if it was a lease modification. We’ll enjoy and see how the advice develops.
4. Restarting Implementation Discussions With Non-General public Consumers
It is significant that CPA corporations demonstrate their consumers how they are planning to support them with the transition. Permit them know that you’re now considering about this challenge in progress so that, when they are all set, you will have a answer in position that will make implementation easy and quick.
As you put together purchasers for forthcoming audit get the job done, make a notice to discuss the new lease regular. Share that your organization has a lease accounting resolution that will make implementation go smoothly.
As you wind down on audits and maintain closing conferences, communicate about what 2022 seems to be like and motivate shoppers to put together for the new lease regular quicker than later on. Deliver them materials on what alternatives your business has to ease the transition, this kind of as lease accounting application.
Though a lot of purchasers will not start off adopting the new lease typical until finally late 2021 or 2022 (or even early 2023), they ought to speak to their banking institutions early about the construction of their personal debt covenants and the probable effect of implementation. They ought to also commence tracking their leases and centralizing lease documents, which will be significant for implementation. Figuring out embedded leases now will also make this procedure a lot a lot easier.