FASB: New leases standard implementation in 2019

As I think most observers expected, the FASB at today's meeting set the implementation deadline as fiscal years starting after Dec. 15, 2018, i.e., calendar year 2019. This matches the IASB decision from last month. The FASB will permit early implementation; they seem to think it most likely that lessors will be early adopters. Given the potential impact on financial ratios, lessees are less likely to want to adopt early. Unlike the IASB, the FASB is not tying early adoption of the new leases standard (ASC Topic 842) to the recently adopted revenue recognition standard. Non-public entities will be given an extra year to comply (i.e., effective 2020).



One more substantive issue came up at the meeting. FAS 13 includes a provision that, if a leased asset is in the last 25% of its economic life, the lease is operating unless there is an ownership transfer or bargain purchase option. The new standard as written lacked any such bypass. Some constituents, particularly lessors, objected to this change, arguing that for lessors whose business model is based on repeated rentals of the same equipment, they could find the anomalous situation of a series of operating leases, followed by a capital lease near the end of the asset's life. Lessees would be potentially caught by the same situation. While there was some concern that this might not properly recognize lessors who are intentionally selling off old assets via lease, the proposed solution for the situation was to skip the economic life test if a lease starts near the end of the asset's life, but to leave the present value/fair value test in place.



With this complete, the deliberations are supposed to be finished. The FASB's news release for today's meeting says the final Accounting Standards Update should be published in early 2016.



Here at FCS, we are working on updating EZ13 to meet the new standard. The current version allows you to treat operating leases as capital, so you can anticipate the effect of putting operating leases on the balance sheet. Complete compliance with the new ASC 842 (and the update to IAS 17 for international entities) will be released next year. We are looking forward to assisting corporations and other reporting entities, both in the United States and throughout the world, in meeting the challenge of the biggest change to lease accounting in 40 years. FCS has been specialists in lease accounting since even before the initial release of FAS 13, and we are happy to put our accumulated expertise to work for customers ranging from Fortune 500 corporations to solo CPAs. Please contact us for more information about how we can help you.