ASU 2016-02, Leases (Topic 842) took effect for public companies at the beginning of this year and is scheduled to be effective for private companies one year later, at the beginning of 2020. This standard is significant in its impact to virtually all entities that enter into leases of more than twelve months in duration. The study and preparation for successful implementation by the effective date of January 1, 2020 is an enormous effort.
AAFCPAs would like to make clients aware of a developing story which occurred this week. The AICPA Private Companies Practice Section’s Technical Issues Committee (TIC) sent a letter Monday, May 13th to the FASB asking for a one-year delay in the private company lease accounting effective date.
Reasons cited in the TIC letter to support a delay in the effective date include:
- Many private companies are just now starting to adopt ASC 606, Revenue from Contracts with Customers due to resource limitations, their reporting process, and timing of their audits. Adding on leases creates additional cost and complexity. The effort to implement leases is expected to be significant and private companies do not have adequate resources to address ASC 606 and ASC 842 at the same time.
- It can take more than one year for private companies to learn what the implementation issues are from SEC comment letters, which is an important part of the education cycle.
- The extent and magnitude of the change could be significant in lease-intensive companies, including potential changes to internal controls and systems for capturing contracts.
- FASB continues to issue narrow scope improvements to this standard and it is difficult to keep up with what the standard currently requires.
- The effort would potentially require private companies to work with lenders to modify debt and other financial covenants as needed in response to the effects of the new standard.
- TIC has found that some of the third-party vendors that have developed solutions to assist companies in implementation of the lease standard have errors in their software and it will take some time to sort through to ensure these solutions are accurate and auditable.
This delay may be welcomed news to many of AAFCPAs’ privately-held commercial and nonprofit clients. AAFCPAs’ Lease Task Force will continue to follow the Board’s deliberations closely. As always, we will keep you informed and provide further updates as they become available.
Regardless of whether the FASB accepts the AICPAs’ proposed delay, AAFCPAs encourages clients to understand the implications of the new lease standard now because of the significant changes contained in this ASU.
Read AAFCPAs’ detailed Lease Standard Whitepaper >> to learn what lessees and lessors need to know.