What will change?

Under ASC 842, both finance and operating leases will be brought onto the balance sheet. Essentially, the lease liability and the corresponding right-of-use asset must be recorded on the balance sheet for leases of property, plant, or equipment with terms in excess of twelve months.

Why are there changes to lessee accounting?

Both the FASB and IASB want to improve transparency for readers of financial statements so that stakeholders have a clearer picture of an entity’s financials. The new changes will achieve this by eliminating one of the largest forms of off-balance sheet accounting.

When do the new rules take effect?

Early adoption by all entities is possible.

Public companies, certain non-profits, and benefit plans: New rules go into effect for interim and annual reporting periods beginning after December 15, 2018.

Private companies: New rules go into effect for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

Does this affect existing leases or just new leases?

The new rules apply to all lease contracts that are in place on the effective date and not only to leases that begin after the new rules come into effect.

Many organizations are deep into the process of centralizing lease data into a new system that supports ASC 842 compliance, and some are just beginning. The task ahead can seem daunting but there are several steps organizations can take that will make the transition more manageable. Contact us at solution@realassetmgt.com for more information on how we can help you prepare for ASC 842 compliance.

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