FASB Announce 2018 as Effective Date for Lease Accounting
At the end of last year, the Financial Accounting Standards Board (FASB) voted to proceed with the new accounting standard and announced 15th December 2018 as the effective date for all public companies under FASB jurisdiction. The final standard will be published this Thursday, 25th February 2016.
The implementation date for the new leasing standard, which will require entities to capitalise all leases as assets and liabilities on their balance sheets – operating leases are currently omitted from the balance sheet – has been extended by one year for private companies. These entities will need to apply the new standard from 15th December 2019. Essentially, public and private calendar yearend companies will need to apply the new lease accounting standard from January 1st 2019 and 2020 respectively, including comparative reports for 2 years previous.
“We believe that this new standard is important because it will provide investors, lenders and other users of financial statements a more accurate picture of the long-term financial obligations of the companies to which they provide capital,
Russell G. Golden, FASB Chairman
The International Accounting Standards Board (IASB) recently announced an effective date of 1st January for 2019, but unlike their international counterparts, FASB has not included conditions for early adoption of the new leasing standard. The IASB have permitted early adoption alongside implementation of the new revenue recognition standard, whereas FASB has not included this prerequisite. It is expected that early adoption will be most appealing to lessors rather than lessees.
American based companies have even less time to prepare their leases and gather the required data to run P&L and balance sheet comparative reports for the fiscal years 2017 and 2018. As the process for centralising, analysing and reporting on data for all active leases can take up to 12 months for some entities, companies must begin preparations within the next year in order to meet the deadline for the required retroactive application of the standard to existing leases and financial statements for 2017 and 2018 for public companies.
Well-recognised accounting firms such as PWC have recommended that companies, who have not done so already, need to begin the process of developing a contingency plan to maintain full compliance. There is concern that although 2019 may seem in the distant future, with the need for retroactive application and a reassessment of internal leasing processes, the real deadline for preparation is more likely 2016, especially for US organisations and companies with large portfolios of leases.
According to research by Deloitte, 85% of executives predict the standard would place a significant reporting burden on lessees. Almost 80% felt that implementing the accounting standard will be difficult, with only 6% believing their company is extremely or well prepared to comply.
Less than 10% of executives reported their company had fully or significantly implemented many of the key implementation tasks.
The best way for companies to reduce the cost and time burdens and achieve full compliance is through specialist lease accounting software. At Innervision, we have developed our lease management software LOIS to allow businesses to gather all their leases in one platform, run the necessary comparative reports and develop a cost-effective solution to achieve compliance to the new lease accounting standard once they are announced in the next few months.
To find out more about how your company can ensure you are prepared for the new lease accounting standard and how LOIS can make this transition a potentially profitable opportunity, download our guide below.
The two boards have converged on most aspects of the accounting standard (this was one of the main goals listed at the beginning often leases project), however, there have been some discrepancies between the two boards throughout the deliberation process.
“The similarities between the two sets of standards are bigger than the differences.
Ian Mackintosh, Deputy Chair of IASB
FASB have decided to retain a dual model approach to classification, including Type A and Type B leases, whereas IASB preferred a single model. Other differences include treatment of small ticket assets, transition requirements and, most recently, issue and effective dates for the new accounting standard.
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