The New Leases Standard – Not Just an Accounting Exercise

While you’ve no doubt heard about the Financial Accounting Standards Board’s (FASB) new standard on leases, you may not have had a chance to consider all of its implications. The adoption date of the new standard will come directly on the heels of the new revenue recognition standard in 2018, with required adoption for public companies in 2019. However, consideration will need to be given to the comparative period which, for income statement purposes, may include periods as early as 2017.

We recently highlighted this topic for you, and provided a deeper dive into the new standard in our February Professional Accounting Update, The New Reality of Lease Accounting.

The following chart taken from that publication illustrates the critical timing involved:

Big Changes to Corporate Balance Sheets

While the new revenue recognition standard has received a great deal of attention for its sweeping impact on the statement of earnings, the new standard on leases is likely to have the most significant impact on the balance sheet. Under the new standard, lessees will recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. By some estimates, the rule change could add trillions of dollars of lease assets and liabilities to corporate balance sheets in 2019, when corporate entities are required to adopt. Presentation of leases in the income statement of lessees is not expected to be affected significantly by the new standard.

While the new standard brings certain technical accounting challenges, that is not the whole story. Betty Davis, Partner at EY and a frequent presenter to FEI’s Committee on Corporate Reporting, observes “adoption of the new standard is more than just an accounting exercise.” Preparers may find the operational side of adoption to be more formidable as it will involve coordination across multiple departments and disciplines (e.g., IT, tax) and require updates to processes, policies and procedures across the organization. The data collection process alone may prove challenging as companies attempt to identify their population of leases, gather the necessary data and identify the systems and available solutions to assist in the implementation and ongoing maintenance of their portfolio of operating leases under the new standard.

The new standard also has other implications for the organization, including asset acquisition and leasing strategies as well as capital market and financing impacts. With so many issues to consider, it is imperative that preparers take the time now to assess the full impact of the new standard carefully and thoroughly to avoid surprises down the road.

FEI to Host Leases Conference in 2016

If you want to get a head start on planning for the adoption of the new standard and better understand its impact on your organization, mark your calendar for FEI’s Leasing Conference on June 16^th in Dallas, TX. This preparer-focused conference will provide information you need to know about the new standard, as FEI brings together top experts from across the country to comprehensively address the changes that will affect your organization.

Our speakers include professional accounting and lease administration experts from KPMG, PWC, EY, Deloitte, Resources Global Professionals, Cresa and LeaseCalcs along with systems, applications and tools providers from SAP, LeaseAccelerator, and Accruant to learn about the new standard and to answer your questions. To address the capital market implications, we have invited representatives from the credit rating agencies including Moody’s, Standards & Poor’s, along with banking experts from Wells Fargo and Barclays. You’ll also hear directly from preparer experts who have been integrally involved in the development of the standard and can share insights on the areas of implementation you most want to know about.

There is no other lease accounting conference that brings together this many experts in one location to help you quickly learn what you need to know about the new standard. Bring your finance, IT, tax, procurement, real estate operations, treasury, accounting, and internal audit staff along with your questions, and get the answers you need to take back to your organizations as you help prepare for adoption.

To register for this event please click here.