This article, "Are you prepared to implement the new lease accounting standard?," originally appeared on KeiterCPA.com.
Summary provided by MaterialAccounting.com: This article explores the new lease accounting standard, ASC 842, and provides resources to ease the transition.
September 2, 2021
By
Colin M. Hannifin, CPA, Business Assurance & Advisory Services Senior Manager
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). The new standard significantly changes the accounting and reporting requirements for leases. After several deferrals by the FASB, the effective date for non-public organizations is nearly here: it will be effective for 2022 for organizations with December 31 year-ends. Public organizations have already adopted it.
The new lease standard requires virtually all leasing activity with initial terms of more than twelve months to be recognized on the balance sheet with a right of use asset and a lease liability. While there are some exclusions, the standard includes all real estate, building, vehicle, and office equipment leases. Organizations can elect not to apply the new standard to short-term leases of less than 12 months; all other leasing activity will have to be capitalized.
As a result, after adopting the new standard, many organizations will be recognizing lease assets (referred to as right of use assets) and lease liabilities on their balance sheets. Even if an organization only has a lease or two, the impact can be significant
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About the Author
Colin M. Hannifin, CPA, Business Assurance & Advisory Services Senior Manager
Colin is a Business Assurance & Advisory Services Senior Manager at Keiter. He has significant experience in public accounting for both the not-for-profit and private sectors. Colin’s clients rely on him for sound advice and insights on accounting regulations and changes that may impact their business.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.
