The new lease accounting standard may be delayed for a year. But you still should be preparing now!
On July 17, the FASB voted to delay the effective date of its new lease accounting standard until January 1, 2021 for calendar year-end private companies. The proposed rule is expected to be finalized after the 30-day comment period. Having one more year to prepare is a good thing. But.
The standard is already in effect for public companies, many of whom have found it to be more complex than originally thought.
In a nutshell, the standard requires operating leases to be recorded on the balance sheet, rather than in an expense and footnote disclosure. Having new assets and liabilities on the balance sheet could significantly impact loan covenants and key financial ratios. So if you have operating leases – and if your financials are on a U.S. GAAP basis – you should be having proactive conversations with your lenders and investors soon.
To prepare, you should be accumulating data and formalizing an implementation plan now. If you have any questions about the new standard or its impact on your business, please contact an LWBJ audit professional.