Amid technology challenges and minor changes to the rules, companies staring down the Jan. 1 effective date for new lease accounting rules are asking the Financial Accounting Standards Board if it will delay implementation.
“No,” said FASB Chairman Russ Golden at a year-end conference of the American Institute of Certified Public Accountants. “We think the system is ready to implement and have a quality implementation at the beginning of next year.”
The board plans to continue to monitor implementation and is willing and prepared to consider further tweaks to the standard as necessary to see companies through the process, said Golden. “At this time, we’re anticipating an on-time implementation,” he said.
Accounting Standards Codification Topic 842 takes effect Jan. 1 for calendar-year public companies to bring virtually all lease-related assets and liabilities on to corporate balance sheets. The board issued the standard in 2016 but set the effective date into 2019 to allow companies to work through similarly significant changes to revenue recognition in 2018.
Companies have struggled with numerous issues in preparing for the new lease rules—including identifying all of their leases, especially those embedded in service contracts. Companies have also faced challenges with technology solutions. Preparers and auditors have said software did not arrive timely into the market to facilitate the data gathering and accounting calculations necessary to comply with the new rules. That has prompted companies to develop various manual approaches and workarounds to get them to the effective date.
FASB has made changes to ASC 842 to facilitate transition to the new rules, most notably permitting companies to present historic periods in financial statements under historic rules. The board also developed a practical expedient related to land easements and has made numerous other “targeted improvements” to clarify or ease the requirements of the new accounting.
FASB’s most recent accounting standards update addresses what the board characterizes as “narrow scope improvement” to the rules that would be applied by lessors. The newest update is meant to reduce costs and ongoing burdens associated with applying the new rules for lessors and clarifies a specific lessor accounting requirement, the board says.
The new ASU makes some changes to the guidance that will apply to lessors as it relates to sales taxes and other similar taxes collected from lessees, certain lessor costs paid directly by lessees, and recognition of variable payments for contracts that contain both lease and non-lease components.