Substantial Changes to Lease Accounting
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Substantial Changes to Lease Accounting: How Will They Affect Your Organization The Financial Accounting Standards Board (“Board”) continues to explore how leases are being recorded in finan cial statements. A new exposure draft released in May 2013 provides guidance that is significantly different than the current U.S. generally accepted accounting principles. The comment period deadline on this exposure draft is September 13, 2013. The Board plans to consid er the feedback received and begin re-deliberations on the new accounting guidance in the fourth quarter of 2013. Key provisions from the lease exposure draft include: • All leases would be recorded as capital leases except for leases that are one year or less (this exce ption was made for cost purposes). • The definition of a lease would be a contract that conveys “the right of use” of an asset. Accordingly, the leased item would not necessarily be provided to the lessee at the end of the lease term. • There would be two types of leases: Type A leases and Type B leases. Type A leases would be leases where the lessee is expected to consume more than an insignificant portion of the asset (an example would be a lease of an automobile). Type B leases would be l eases where the lessee is not expected to consume more than an insignificant portion of the asset (an example would be a lease of land or a building). • The accounting for the Type A and Type B leases would be the same for the balance sheet; however, on the income statement, the expense would be recognized differently. Type A l eases would recognize more expense at the beginning of the lease term, while expenses for Type B leases would be recognized on a straight-line basis (similar to operating leases). • The transition to this new guidance will be in a modified retrospective or full retrospective approach. While the lease proposal is still in draft form, it appears that changes will be made to the current lease guidance that will require lessees to recognize assets and liabilities arising from their involvement in most leases. We encourage organizations with any comments or concerns about the new proposal and the related effects of the lease changes on financial covenants, cost reports or other agreements to please contact Christopher J. McCarthy, [email protected], Keith Solomon at [email protected] or Dorothea A. Russo at [email protected] Christopher J. McCarthy Partner [email protected] 914.341.7018 Keith Solomon Partner [email protected] 914.341.7078 Dorothea A. Russo Partner [email protected] 914.341.7087
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Transcript of Substantial Changes to Lease Accounting
7/27/2019 Substantial Changes to Lease Accounting
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Substantial Changes to Lease Accounting:
How Will They Affect Your Organization The Financial Accounting Standards Board (“Board”) continues to explore how leases
are being recorded in financial statements. A new exposure draft released in May
2013 provides guidance that is significantly different than the current U.S. generally
accepted accounting principles. The comment period deadline on this exposure
draft is September 13, 2013. The Board plans to consider the feedback received and
begin re-deliberations on the new accounting guidance in the fourth quarter of 2013.
Key provisions from the lease exposure draft include:
• All leases would be recorded as capital leases except for leases that are one
year or less (this exception was made for cost purposes).
• The definition of a lease would be a contract that conveys “the right of use”
of an asset. Accordingly, the leased item would not necessarily be provided
to the lessee at the end of the lease term.
• There would be two types of leases: Type A leases and Type B leases. Type A
leases would be leases where the lessee is expected to consume more than
an insignificant portion of the asset (an example would be a lease of an
automobile). Type B leases would be leases where the lessee is not expected
to consume more than an insignificant portion of the asset (an example
would be a lease of land or a building).
• The accounting for the Type A and Type B leases would be the same for the
balance sheet; however, on the income statement, the expense would be
recognized differently. Type A leases would recognize more expense at the
beginning of the lease term, while expenses for Type B leases would be
recognized on a straight-line basis (similar to operating leases).
• The transition to this new guidance will be in a modified retrospective or full
retrospective approach.
While the lease proposal is still in draft form, it appears that changes will be made to
the current lease guidance that will require lessees to recognize assets and liabilities
arising from their involvement in most leases. We encourage organizations with any
comments or concerns about the new proposal and the related effects of the lease
changes on financial covenants, cost reports or other agreements to please contact
Christopher J. McCarthy, [email protected], Keith Solomon at
[email protected] or Dorothea A. Russo at [email protected]
Christopher J. McCarthy
Partner
914.341.7018
Keith Solomon
Partner
914.341.7078
Dorothea A. Russo
Partner
914.341.7087
7/27/2019 Substantial Changes to Lease Accounting
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