By: Sam Evans, CPA and Nathan Ashcroft – Hancock Askew
On February 25, 2016 the Financial Accounting Standards Board (FASB) added ASC 842, Leases, which changed the way leases are recorded for both public and private companies. Companies will be required to present a Right-of-Use (ROU) asset as well as an associated lease liability on their balance sheets. For all entities, other than public businesses, ASC 842 was originally effective for annual periods beginning after December 15, 2019 (i.e., calendar year periods beginning on January 1, 2020), and interim periods thereafter. However, in some recent “good news”, FASB has finalized a one-year extension in the effective date for all non-public companies. This will extend the effective date to annual periods beginning after December 15, 2020 (i.e. calendar year periods beginning on January 1, 2021) and interim periods within fiscal years beginning after December 15, 2021. Early adoption will continue to be allowed.
Most companies, when starting the implementation process, quickly realized that implementing the new standard was more complicated and time consuming than originally expected. The FASB acknowledged that the delay in the effective date may relieve some of the recent stress and pressures surrounding implementation.
While the extension is intended to allow companies more time to adjust to the new guidance, we advise that actions taken to implement the new standard not be set aside and forgotten. Instead, we recommend that this next year be used to gather the relevant documentation, determine if new lease accounting systems are required, and to ask questions of all stakeholders (auditors included!). Postponing implementation until next year may result in the same stress and pressures that many felt before the extension.
Our team has worked closely with many companies, both public and private entities, to help ease the transition to the new lease accounting guidance under ASC 842. If you have questions on how the effects of ASC 842 can impact your business, please contact us.