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With most companies still preparing for the implementation of the new revenue recognition standards (ASC 606), a request was made to the Financial Accounting Standards Board (“FASB”) to delay the effective date of the new lease standards (ASC 842). In July 2019, a committee for the American Institute of Certified Public Accountants (“AICPA”) requested this delay, citing that private companies needed more time to prepare for this significant change in lease accounting.

On October 16, 2019, wishes were granted for private companies as the FASB officially approved to delay the effective date for ASC 842 giving private companies an additional year to plan for adoption. The new effective date for the standard is fiscal years starting after December 15, 2020. However, even given the extra year, companies should start preparing for the implementation now.

A few things companies should consider doing now regarding the lease standard change:

  • Communicate with their banks regarding loan covenants; as most leases will now be reported as an asset and liability on the balance sheet, companies should discuss with their banks if the additional liabilities will impact their loan covenants.
  • Review of current leases; go through the company’s current leases to determine if each will be considered financing or operating leases under the new standard. Practical expedients are available for private companies to make this transition easier.
  • Purchasing lease software; software will be able to make implementation smoother for companies. Many of the software choices have places to store your leases in PDF, will create journal entries both for implementation and each month going forward, as well as create amortization tables.

As we celebrate this small victory the private companies have had with the delay, we must not delay our preparation. CDH is here for you every step of the way to help discuss potential issues with your banks, help you review your current leases, as well as assist with finding a good lease software.

Contact Emily Bartlett, Senior Assurance Manager, at [email protected] for any questions on the new lease standards.