Financial Accounting Standards Board Proposes Delays to Two New Accounting Rules

The Financial Accounting Standards Board (FASB) voted Wednesday to propose a delay for two very important new accounting standards

1. The new accounting rules around the recognition of credit losses referred to as CECL and
2. The new accounting rules for leases. The delay is specific to private companies, not-for-profit entities, small reporting companies, and other types of public businesses (including all credit unions).

CECL is being delayed an additional year, moving the effective date from 2022 to 2023. The effective date for the lease accounting standard was fast approaching, now it has been delayed from 2020 to 2021. These delays need to be ratified by the FASB after the end of a comment period but it is nearly certain that both of these accounting rules will be delayed.

This gives organizations extra time on both these important new accounting rules.

The new accounting rules will impact all leases for equipment, property, autos, etc.

In a nutshell, Accounting Standards Codification No. 842 – Leases (ASC 842) will require all entities to record an asset (similar to a fixed asset) and a liability (similar to debt) based on the present value of future lease payments for all leases that have a term of more than 12 months. Entities will also have to add some new lease footnote disclosures in the audited financial statements.

The adoption of ASC 842 will have a financial impact on a very key balance sheet ratio – the net worth to total assets ratio due to the gross-up of assets and liabilities.

Manually collecting all of your lease agreements, extracting the key data, and making certain accounting elections upon adoption can be a labor-intensive and complex process. In addition, doing a discounted cash flows calculation and determining the proper journal entries have their own complexities.

We can help entities with the entire process: extracting the necessary data from your lease agreements, entering information into our discounted cash flows model, running amortization tables, determining journal entries, and assisting with the footnote disclosures.

For more information on the lease accounting standard, including the possible impact on your net worth to total assets ratio, and what we can do to assist you, please contact your Whittlesey advisor.