Good news for companies facing FASB compliance in 2019
There’s good news on the FASB compliance front, which is not quite official yet but should be finalized any day now. It looks like the FASB board is about to approve an option for organizations to eliminate the 2-year lookback as they move to FASB compliance with ASC 842.
Apparently, the FASB board is attempting to reduce the monumental amount of lease data collection companies are facing, especially large, distributed organizations with large leased portfolios. To get ready for lease compliance, you’ll need to fundamentally change your lease accounting practices. As of now, that means finding, classifying, extracting, collecting and aggregating mountains of data over a 3 year period (representing the current reporting year plus 2 years prior).
What does this FASB compliance change mean for you?
Let’s be clear about one thing: this change does not impact the new lease accounting standard effective date. For public companies and others meeting certain criteria, you’ll need to be ready for FASB compliance by January 1, 2019. Most private companies have another year.
What’s changing is the requirement to provide financial statements for a 2-year comparative reporting period (as known as the 2-year lookback) according to the new rules. Instead, you can choose to apply the new lease accounting standard at its effective date to achieve FASB compliance with ASC 842.
According to the new FASB standard (ASC 842), you must recognize and measure leases at the beginning of the earliest period presented in your financial statements (which is 2 years prior to the current year). That means, for public companies using the January 1, 1019 FASB compliance date), you would need to measure and recognize leases as of January 1, 2017.
That’s why public companies are scrambling to collect lease data right now. You’re already a year behind.
Under the proposed change, the requirement to measure and recognize leases during the comparative reporting period goes away. Needless to say, this change simplifies the transition to FASB compliance under the new standard. You won’t need to include leases that expired prior to January 1, 1019, and you won’t need to remeasure leases modified multiple times during your comparative reporting period.
Don’t let this news slow down your FASB compliance plans
Once this change is officially announced, many public companies will be breathing a collective sigh of relief.
However, we have to caution you not to let this news change slow down your efforts to get ready for FASB compliance. You have fewer leases to worry about and some data collection tasks that you can cross off the list. But there’s still a great deal of work to do. And, the sooner you get through the job of preparing data and changing your lease accounting practices, the sooner your organization can reap the benefits of FASB compliance.
You may be wondering what benefits we’re talking about. Getting to go home to your family at a reasonable hour instead of working 18 hour days? Maybe, but there are other considerable financial and efficiency gains you can achieve because of your FASB compliance efforts.
If you’ve been following our blog, you know we have been pointing out some of the upsides related to the effort required to achieve FASB compliance.
In case you missed it, read these articles to learn more:
Lease Accounting Changes: The Silver Lining You’re Overlooking
How Lease Accounting Software Can Pay for FASB/IFRS Compliance
How to Implement Lease Accounting Technology: Steps to Ensure a Smooth Transition to ASC 842/IFRS 16