FASB Announces Possible Postponement of Lease Accounting Standards for Private Companies
Recently, the Financial Accounting Standards Board (FASB) met to review and discuss several topics, including the required adoption date for the highly anticipated lease standard for private companies.
It had been noted during the public company adoption period last year that the initial level of effort and cost to implement the standard was somewhat higher than originally anticipated. This was primarily due to the need for system changes, or new systems altogether, to accurately capture the required data and the new or updated controls surrounding leases. Additionally with the revenue recognition standard also effective for fiscal year-end 2019 for private companies, the FASB determined it would be reasonable to delay the effective date of ASC 842 for private companies by one year. The new effective date will now be for periods beginning after December 15, 2020, or for calendar year-end entities, 2021.
While this decision is still open for public comment, it is expected to pass. In fact, the postponement will likely be supported as there is still a lot to learn from the public company adoption of the standard. There are many nuances, and given the additional time, private companies will hopefully avoid some of the pitfalls that public companies encountered during implementation. While the delay may feel like a breath of fresh air right now, be sure to use the extra time wisely!
Some key challenges noted from public company adoption include:
- Leases may not clearly being labeled a lease,
- Considerable effort was needed to identify full population of leases,
- Lease data requires significant judgment, and
- Software companies can be helpful, but also require significant implementation time.
Even though it appears you may have more time to comply with this standard, you still can (and should) begin the implementation process now – an easy first step to start thinking about is to begin gathering all your leases and centralizing their storage. As we saw with the public company adoption, it will take a good deal of time and resources to get it right and it’s important that this is done correctly the first time around to avoid any complication or regulatory concerns down the line. For more information, you can read the FASB’s full announcement here.
Should you have additional questions, or need assistance navigating the new standard, feel free to reach out to me at email@example.com.