This week, U.S. accounting rulemakers voted in support of giving private companies an extra year to comply with the recently-adopted lease accounting rules. Companies now would have until 2021 to report their leased assets on balance sheets. This deadline change was proposed by the AICPA and was unanimously supported by the Financial Accounting Standards Board (FASB) at a meeting on July 17, 2019.
Extending the deadline makes sense. Many private companies expressed concerns about adopting 842 standards by the originally-proposed 2020 deadline. ASC 842 came on the heels of another FASB rule change, ASC 606, which required companies to change the way they recognized revenue. ASC 606 placed a huge burden on accounting and finance teams and many companies are still scrambling to comply.
In addition, the new lease accounting rules will require a huge amount of work. As public companies can attest, private entities will have to identify every one of their leases, including contractual arrangements that don’t look like leases, but are considered leases under the rules. They need to hunt down the documents, including amendments and letter agreements for each lease, many of which are buried in file drawers in remote offices. Also, they will have to identify the key terms and data points to extract from those leases in order to perform their lease accounting calculations. Those who have a significant quantity of leases will need to select and implement lease accounting software to manage and process that data. And when all of that is done, they have to generate and validate the asset and liability values for their financial statements’ disclosure schedules.
Each of these tasks individually can take months to accomplish. FASB recognized this, understanding that most private companies do not have teams and advisors in place to get this done (something else they have to do).
FASB made a wise decision in recognizing these challenges in its recent board meeting, and in deciding to extend the compliance deadline to 2021. But private companies beware: don’t use the extra time to sit back and relax; you will need every single day of this newly-found year to get this all done.
MARC BETESH, ESQ., MCR.H
Founder of both KBA Lease Services and Visual Lease, Marc leverages his knowledge of leases with technology to improve the management and performance of leases for both companies’ clients.
Marc received his BA from Temple University and his JD from Georgetown University. He is a member of the New York and New Jersey bars. Prior to establishing Visual Lease (1996) and KBA Lease Services (1985), Marc practiced law in New York City where he negotiated commercial leases.