Lease Standard Delayed Until 2022

The Financial Accounting Standards Board (FASB) issued an Accounting Standards Updated No. 2020-05 in June of 2020 that defers the effective date of the Accounting Standards Update No. 2016-02, Leases (Topic 842).

The amendments in this update defer the effective date for one year for entities in the “all other” category (private companies and not for profit entities) making the standard effective for fiscal years beginning after December 15, 2021. Early application continues to be permitted.

See here for more information from our blog on the lease standard.

Here is a link to FASB website with the announcement.

Top 5 things business owners need to know about the new lease standard:

1. Lessees must now recognize operating lease assets and liabilities on the balance sheet.
2. Leases over 12 months  – The standard requires right-to-use assets to be added to the assets section of the balance sheet at present value of the related lease obligations to be included as liabilities. These changes could make lessees appear significantly more leveraged and cause unprepared entities to violate their loan covenants.
3. Sales-leaseback transactions must meet the revenue recognition requirements in ASC topic 606 Revenue from Contract with Customers.
4. The lease standard will increase in Financial statement disclosures. They must disclose qualitative and quantitative requirements, including information about variable lease payments and options to renew and terminate leases.
5. Effective dates – You can elect to adopt the lease standard early. Otherwise, it is effective for public companies in 2021. Private companies’ and not-for-profit entities’ financial statements must comply with ASU 2016-02 in 2021.

What should I do now and how can Froehling Anderson help?

Talk to your accountant at Froehling Anderson and prepare to have discussions with your banker about what your financial statements will look like and how your debt covenants will be impacted. Froehling Anderson can assist with calculating and recording your leases on the balance sheet, preparing pro forma financial statements to see what the impact will be and discuss the impacts with your banker. With our knowledge and expertise, we can make this transition seamless for you!