New Lease Accounting: The Delayed Implementation is HERE

To private companies and not-for-profit organizations that have not implemented the new lease accounting rule ASC 842:  If you haven’t already, now is the time to begin preparing for implementation.  The ASC 842 lease accounting standard is a significant shift in accounting and could have substantial impact on your business.  It is effective for all entities for fiscal years beginning December 15, 2021.  For companies with calendar year-ends, it starts in less than 3 months.

Here’s what you need to do to prepare now.

  1. Familiarize yourself with the new lease accounting rules.

ASC 842 applies to both lessee and lessor.  Lessees are required to recognize both the assets and liabilities arising from their leases, whether the lease is classified as a finance lease or an operating lease.  Lessor accounting remain largely unchanged, however, lease revenue recognition now matches those under the new revenue recognition standard.

  1. Inventory the existing lease contracts within your organizations.

You may need to work with multiple departments across you company.  Document each lease and the relevant details.  Pay special attention to embedded leases, leases that exist within other contracts or agreements.  An example of a contract that may contain an embedded lease is a security contract that contains a lease for equipment, like cameras, scanners, or monitors.

  1. Prepare for the calculations and disclosures

There are many complex calculations to be performed during each reporting period beyond calculating the initial assets and liabilities, and some are listed below:

  • Lease liability amortization schedule
  • Right-of-use asset amortization schedule
  • Operating lease cost – straight-line rent expense
  • Finance lease cost – interest expense and ROU asset amortization
  • Discount rate implicit in the lease

Lease accounting software may save you time.  However, it still requires some upfront work from your end.  If you need help from an experienced CPA to assist in this endeavor, give us a call now.

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