Editor’s note: On April 21, 2020, the Financial Accounting Standards Board (FASB) proposed an optional, one-year implementation delay for certain private companies and nonprofits, as a result of the COVID-19 crisis. This proposed delay still requires FASB approval, but it is expected to progress quickly. Contact your RKL advisor with questions as to how this applies to your organization.
Private companies and most not-for-profit organizations may have more time to prepare for the new lease accounting standard. On July 17, 2019, the Financial Accounting Standards Board (FASB) proposed a delay to implement the standard for private companies and not-for profit organizations that are not bond obligors, bumping back the effective date to annual reporting periods beginning after December 15, 2020 (2021 for calendar year–end companies). Early adoption is still permitted.
Why did FASB vote to delay implementation?
The new lease accounting rules were first adopted by public companies on January 1, 2019. Private companies and other entities were scheduled to follow suit one year later. The gap in effective dates allows time for the identification of major issues and the development of best practices stemming from public company adoption.
In the case of the lease accounting standard, public companies faced several significant issues during implementation. Given the complexity of the new standard, private companies and accounting industry stakeholders raised concerns that a one-year gap in the effective date was not sufficient enough to address major issues related to technology, business practice updates and staff education and advocated for a delay.
The FASB agreed that more time would improve the quality of implementation across a wider range of companies and approved the request at its July 17, 2019 meeting.
Is the delay official?
Not yet. With its July 17 vote, the FASB authorized the publication of an Accounting Standards Update (ASU) to formalize the proposed delay and seek comments and feedback during a 30-day window. The ASU will be finalized at the conclusion of the comment period.
Based on the discussion at the July FASB meeting, RKL does not expect any push back on the proposed delay and expects it to be made official later this summer.
How should organizations use the extra time?
Private companies and not-for-profit organizations that are not bond obligors should invest the time and resources to fully prepare for the new lease accounting standard. Use the proposed effective date extension to review all current leases, establish new evaluation protocol, engage with financing institutions, update technology and train staff. Read our primer on lease accounting for more detailed preparatory guidance.
Contact your RKL advisor to make sure your organization is prepared for the new standard and to get a better handle on how the new treatment of leases will impact your bottom line.
