In an effort to reduce off-balance sheet accounting of operating leases, the accounting standards boards issued new accounting guidance for how organizations are required to evaluate and recognize leases. The new guidance will require measurement and recognition of all leases with a term of greater than twelve months on the balance sheet.
FASB ASC 842 – LEASE STANDARD
GASB 87 – LEASE STANDARD
With the incorporation of operating leases on the balance sheet, organizations will have to be much more diligent in evaluating components of each contract to determine whether or not they meet the new definition of a lease. Depending on the volume, complexity of contracts, availability of data, and so forth, this process could be time consuming and labor intensive. A review of current and potential future debt arrangements will also need to be evaluated.
Lessees will be required to disclose qualitative and quantitative information about its leases. For example, general description of the lease, terms and conditions of options to extend or terminate the lease, any restrictions or covenants imposed by the lease, and significant judgments made by management like lease discount rates or lease classifications.
Lease Standard Transition
Our professionals provide tailored solutions to help with the transition to the new lease standard. We are able to deliver comprehensive services while still meeting critical deadlines. Each engagement is custom-built for your specific needs; below are examples of the services we typically provide.
- Engage with staff on current processes and reports to evaluate areas for data gathering
- Attend governance and other project meetings to provide suggestions and recommendations
- Obtain the lease information already available (i.e. capital and operating leases)
- Discuss the current lease identification practices
- Review transactional details, contracts, agreements, et al. to identify potential leases
- Review all lease agreements potentially impacted by the new standard
- Collaborate with various workgroups to address integration and consistency in processes
- Prepare summaries of contract terms or other agreement stipulations to assess lease types
- Develop a process for identifying leases moving forward
- Update policies & procedures, and training materials for leases and related areas
- Educate various departments on identifying leases under the new definitions
Lease Accounting Updates
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