Many companies lease (rather than buy) much of the equipment (forklifts, vehicles, computers) and real estate (offices, warehouses, factories) they use to run their businesses. There are many benefits to leasing, including increased cash flow flexibility and reduced risk of technology obsolescence. Historically, one of the benefits to leasing has been the accounting treatment: specifically the way the leases are reported on financial statements such as annual reports (10-Ks). Today, under the current ASC 840 lease accounting standard, leases are classified as capital leases or operating leases. Capital leases are reported on the balance sheet. Operating leases are disclosed in the footnotes of financial statements as “off-balance sheet” operating expenses and excluded from important financial ratios, such as return on assets, that investors use to judge a company’s performance.
However, off-balance sheet leases will soon be a thing of the past. The Financial Accounting Standards Board (FASB), which governs the standards for US Generally Accepted Accounting Principles (GAAP), and the International Accounting Standards Board (IASB), which governs the International Financial Reporting Standards (IFRS), have introduced new lease accounting standards which will transfer these operating leases onto the balance sheet.
The two new standards recently introduced are:
- New US GAAP Lease Accounting Standard – FASB ASC 842 for leases was introduced in February 2016. The first implementation dates start in 2019. Read the official FASB documentation here.
- New IFRS Lease Accounting Standard – IFRS 16 for Leases was introduced in January 2016. The first implementation dates start in 2019. Read the official IASB documentation here.
Get Started with Your Lease Accounting Project
In this online guide, we have assembled all the resources you will need to implement the new lease accounting standards. Below you will find links to the technical accounting documentation from the Big Four and the standards boards. You will also find recommendations on how to staff the project team, budget for implementation, collect the leasing data, and evaluate software options. These best practices were collected from our team of 20-30 year leasing veterans, who have worked with many different Fortune 500 companies to manage and transform their lease accounting programs.
Staffing the Project Team
Budgeting and Planning
Data Collection and Implementation
Selecting Lease Accounting Software
Learning the Technical Standards
Links to More Information about the New Lease Accounting Standards
Read what the Standards Boards and Big Four Have Published on Lease Accounting
FASB’s Lease Accounting Project Page
Goals and core principles of the project. How the new standard will change current GAAP. All the documentation released in the public domain from the original off-balance sheet obligation study to the final standard – ASU 2016-02 published in February 2016.
IFRS Lease Accounting Project Page
Explains goals, timeline, and latest updates on the new IFRS lease accounting standards. Includes all the historical documents from the original project proposal and discussion paper to the final standard (IFRS 16) published in January 2016.
PWC Lease Accounting Page
All of PWC’s resources for the new lease accounting rule. Includes links to technical accounting briefs, discussion documents, webinars, and podcasts from PWC experts. Includes perspectives on special topics such as “build-to-suit,” leaseback arrangements, and service contracts with embedded leases.
EY Lease Accounting Page
A comprehensive page listing all of EY’s resources on the new lease accounting rule. Includes “To the Point” and “Technical Line” documents as well as links to podcasts and webinars. Also, check out the analysis of FASB’s lease impacts by vertical industries (automotive, airlines, consumer products, health care, financial services, etc.)
Deloitte Lease Accounting Page
Deloitte’s educational page about the new lease accounting standards. Includes a timeline of effective dates, list of expected impacts, illustrative accounting examples, and links to recent news.
KPMG’s Lease Accounting Page
Includes links to newsletters, webinars, and discussion documents, such as first impressions, defining issues, and executive accounting updates (for lessors and lessees). Extensive coverage of IFRS lease accounting.
AICPA’s Lease Accounting Page
All of AICPA’s resources on the new lease accounting standards, including a practice aid, an implementation plan, an accounting brief, and webinars. Also provides links to articles in the Journal of Accountancy and the Center for Plain English Accounting.