Take Advantage of the New Lease Standard Effective Date

Earlier this month, the Financial Accounting Standards Board (FASB) announced they extended the effective dates for the new lease accounting standard. It had been rumored for months that the FASB would make this adjustment for non-public entities, and the day has finally come. Public entities struggled to overhaul their business processes in time to comply by their effective date of January 1^st of this year, and non-public entities implored the FASB to help them avoid a similar result. The FASB heard these requests from industry groups, professional organizations, and private businesses nationwide and agreed to push back the effective date for non-public entities. To help clients, prospects and others understand the change and impact to their company, Wilson Lewis has provided a summary of key details below.

New Effective Dates

Non-public entities must now apply the new lease accounting standard on annual reports for fiscal years beginning after December 15, 2020, and on interim reports for fiscal years beginning after December 15, 2021. These due dates were pushed back exactly one year from their original deadlines.

The hedge accounting standard and the long-duration insurance contract standard were also delayed by one year with a new effective date of December 15, 2020, and the credit loss accounting standard was delayed by two years with an effective date of December 15, 2022.

Next Steps

This additional time is critical because there is still so much to be done. Here are a few things to consider as companies take advantage of the extra time:

• Review all existing lease contracts to see if they qualify as leases under the new standard
• Employ lawyers who can review incoming leases and set guidelines for your employees to follow going forward
• Create best practices for signing, canceling, or amending leases
• Train accounting staff how to record new leases
• Revamp procurement protocols so the correct lease data is collected at the onset
• Implement a system that tracks lease renewals, adjustments, amendments, and cancellations
• Establish which assumptions to use when certain lease data is unknown or difficult to find, including what incremental borrowing rate you will apply
• Task IT staff to create solutions in your existing accounting software
• Look into software vendors that can help track initiation dates, right-of-use asset values, variable pricing, interest rates, renewal dates, lease and non-lease components, etc.
• Draft disclosures and footnotes for both the transition period and after implementation
• Renegotiate loan covenants if the new lease liabilities will affect your debt-to-equity ratios
• Set and stick to an implementation calendar

Most importantly, test new software, systems, and processes to make sure you will be prepared before January 1, 2021.

Each of these tasks will require work from multiple team members, so it may be helpful to consider utilizing an external provider to assist. They can train internal accountants on what to look for, establish best practices to follow going forward, and can check in so the process stays on track for the new implementation date.

Questions?

Public entities have been complying with the new standard for months, and we’ve learned a lot from their experiences. Although private entities have been given an additional year to comply, it is no time to sit back and take a breath. If you have questions about the deadline change or need assistance implementing a compliance plan, Wilson Lewis can help! For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.