In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-02, Leases (Topic 842), which made significant changes to lease accounting. These new rules are in effect for private companies with fiscal years beginning after December 15, 2019, in other words, 2020 for companies with a calendar year end. While publicly traded business entities are already using the new standard, it’s worth noting that there has been strong support from the AICPA to delay the implementation date at least one year, meaning that private business entities with a calendar year-end would not have to adopt the new standard until 2021, though any potential delays are still pending. The FASB discussed this delay in their July 17, 2019 board meeting, with an exposure draft being released on August 15, 2019. Exposure drafts have a comment period of 30 days, which ended September 16, 2019; therefore we are currently awaiting the results of that comment period.
A few years ago, I wrote an article regarding lease options, and it caused quite a bit of fanfare. Due to numerous hits, we feel it’s time for a refresher as well as to dive into a little more detail. The structuring of lease options needs to be scrutinized to ensure that the IRS does not arrive and re-characterize the lease option as a sale.
Ready or not, here it comes. Starting in 2019 for public companies (2020 for private companies), the way leases are accounted for and reported will change. These changes can impact the financial statements of lessees. While the implementation date might seem far away in the future, companies should start preparing for the changes in order to achieve a smooth transition.