Practical insight and analysis on the accounting, audit and tax issues impacting not-for-profit organizations.
The New Lease Standard (ASC 842): How to Prepare for Implementation
Posted by Melissa Dunn Sep 29, 2022 5:08:49 PM
The Financial Accounting Standards Board (“FASB”) has issued a new lease standard (ASC 842) to increase transparency and comparability among organizations with leasing activities. Below are some key facts related to this new standard and its impact on your organization.
Who is affected? Any organization with leasing activities (lessee or lessor).
When will the amendments be effective for your organization?
Effective for fiscal years beginning after December 15, 2019 for all not-for-profits with public conduit debt.
Effective for fiscal years beginning after December 15, 2021 for all other not-for-profit organizations.
The new standard changes the financial reporting requirements for organizations entering into lease agreements and transactions for assets such as buildings, equipment and vehicles.
The new standard will require leases to be recorded as right of use assets and liabilities on the statement of financial position.
The new standard also requires additional financial statement disclosure requirements for an organization’s leases.
What is a lease? Contract or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.
How to prepare for the new standard and its impact on you organization?
Create a schedule that includes all leasing agreements and amendments that can be reviewed with your accounting team.
The new standard has broadened the definition of a leases. This now includes certain service contracts where your organization controls the use of property, plant and equipment not previously considered leases. Potential leases and arrangements to be included in the schedule are listed below.
Certain IT contracts
Certain power and utility contracts
Food service contracts
Related party leases
Information to include in the schedule:
Lease terms and conditions
Short-term, long-term, month to month
Options to extend or terminate the lease
Existence and terms and conditions of residual value guarantees provided by lessee.
Any restrictions or covenants imposed by leases
Your organization should be prepared to record recurring journal entries for right of use assets and lease liabilities for long-term leases.
If your organization has a significant amount of lease arrangements, it might be useful to obtain lease software to track and account for them.
Next Steps? Schedule time with your team at BBD to determine the next steps for successful implementation of the new accounting standard.