After a lengthy discussion period that has spanned the last several years, the Financial Accounting Standards Board has issued a new accounting standard that will result in companies recording all of their leases on the balance sheet versus current practice whereby operating lease commitments are only disclosed in the footnotes to the financial statements. This practice of off balance sheet financing has been a significant topic of discussion for financial statement preparers and users.
Under the new standard, there will be two types of lease transactions – finance and operating. Both types of leases will result in the lessee recording a right-to-use asset which will be amortized, and a corresponding liability. The new standard does provide relief in that preparers do not have to capitalize leases with an original term of twelve months or less.
The required implementation of this standard will follow closely after the date that companies are required to adopt the previously released accounting standard on revenue recognition.
The leasing standard will be effective for public companies for fiscal years and interim period within those fiscal years beginning after December 15, 2018. For the remaining entities the standard will be effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted.
Whitley Penn continues to be one of the region’s most distinguished public accounting firms. With a strong base in Texas and a worldwide network affiliation via Nexia International, the firm is strategically positioned for continued growth both locally and internationally. Whitley Penn has been consistently recognized as “One of the Top 100 Firms in the U.S.” and “Best of the Best” by INSIDE Public Accounting. For more information on Whitley Penn, please visit whitleypenn.com.