ASU will require that lease obligations be added to the balance sheet
AAFCPAs would like to make you aware that on Nov. 11, 2015 the Financial Accounting Standards Board (FASB) voted to proceed with a new accounting standard that would require companies and other organizations to include lease obligations on their balance sheets as opposed to simply disclosing in the financial statement footnotes. The ruling will affect any company that pays to lease real estate, office equipment, vehicles or other items.
The FASB vote means that companies must embrace the new standard and determine how it’s going to impact their business model. In addition, companies must understand and consider the impact of lease obligations on any debt covenants, as well as any potential concern that financial statement users may have regarding profitability changes. The Wall Street Journal reported that the move “could swell balance sheets by as much as $2 trillion, and make some companies look more leveraged to the average investor than they do now.” Once the standard is in effect, AAFCPAs advises that you be proactive so you are able to communicate with lenders or your Board and mitigate any concerns that may arise regarding your perceived change in financial position.
For public companies, the upcoming standard will be effective for fiscal years (and interim periods within those fiscal years) beginning after December 15, 2018; for private companies, the standard will be effective for annual periods beginning after December 15, 2019. Early adoption will be permitted for all companies and organizations upon issuance of the standard. It is expected that the final standard will be published in early 2016, giving preparers enough time to review and prepare for the changes by the effective dates.
If you have any question about how the lease accounting standard will impact you directly, please contact your AAFCPA partner, or Jeffrey Mead, CPA, CGMA at 774.512.4131, email@example.com. As always, AAFCPAs will keep you informed and provide further updates as necessary.