Corporate accounting has rarely seen a “perfect storm” like the one we face this year. In addition to tax reform and the changes to revenue recognition, the FASB’s change to lease accounting standards (ASU 2016-02, Leases (Topic 842)) will have an impact on balance sheets starting as soon as January 2019.
Under the new standard, companies must record an asset and a liability on the balance sheet for nearly all leases. Office space, equipment, automobiles and other items that are leased will now be reflected on the balance sheet. This marks the start of a new era in accounting, causing lenders and other users of financial statements to adapt to a redefined set of liabilities.
Understanding the impact on your company
Assessing the impact of the ASC 842 new standard for accounting for leases may be a somewhat daunting task for companies with hundreds (or even thousands) of leases. The new standard applies to embedded leases, which adds complexity to the transition. Many contracts that may not be considered a lease contain embedded lease arrangements. Assembling a schedule of leases and assessing them may require special software to even begin understanding the accounting implications.
The Accounting Advisory team at Frazier & Deeter is ready to help your company make the transition to the new lease accounting ASC 842 standard.
Call us today to schedule a Lease Accounting Assessment Session with our technical accounting team.