Read the original article posted on Accounting Today.

As we wrap up an unpredictable year, let’s explore the Financial Standards Accounting Board (FASB)’s recent roundtable discussions and new guidance on lease implementation for public and non-public organizations, and what we can expect for non-public implementation next year.

Don’t make big changes to the lease standard

Public companies understand the new lease standard now that they have completed their implementations. For the most part, the guidance works as intended and is a more transparent way for organizations to account for their leases.

Financial statement users are also gaining comfort in how they understand the impact of the new lease standard on an organization’s financial health. Disclosures are providing the needed information to analyze lease portfolios.

While organizations would like to see improvement, the consensus is that big updates could make future implementations more confusing. Listening in on the FASB’s September roundtable session, it was quickly apparent that the participants did not want sweeping changes. Instead, they are seeking additional flexibility and expanded practical expedients to simplify the accounting and auditing of calculations, while achieving the intent of the new lease standard.

Increase decision-making options

Leases within an asset class tend to have many similarities, including materiality, financing options, and terms. Implementing the new lease standard could be easier if more decisions, like methods for determining the discount rate, were decided by asset class. Real estate leases have a much greater impact on the financials than photocopiers and the effort required for decision-making ought to be similarly aligned.

In talking to Beth van Bladel, CPA about the recent discussions, I heard a similar desire regarding the incremental borrowing rate: “I believe private companies would welcome a practical expedient to reduce the cost and complexity associated with determining the incremental borrowing rate. The Private Company Decision-Making Framework was developed to assist the FASB and the Private Company Council in evaluating potential accounting alternatives such as this.”

Improve clarity around materiality

The new lease standard seemingly assumes that organizations would apply their typical materiality rules, but it’s not clear in the current guidance. As noted in the example above, they might like to use the federal discount rate for smaller items like photocopiers and expend greater effort when determining the discount rate for larger-value leases like real estate. The industry is looking for more guidance on materiality standards.

FASB wants the lease transition to be easy for non-public organizations

One thing I’ve noticed, especially recently, is that the FASB Board and staff genuinely care about accountants’ experiences and actively listen to participant concerns. At the roundtable, they asked additional probing questions to uncover the why behind the issue. They ultimately want the transition to be easy.

In October, the FASB proposed three targeted lease accounting changes (separate from the September roundtable) demonstrating their continued commitment to simplifying the new lease standard.

Delaying the new lease standard for non-public organizations has created a lack of financial statement comparability, which is a problem for industries where both public and non-public entities exist. At the same time, the delays provide the FASB with more time to propose further guidance that may ease non-public implementation of the new lease standard.

Need help keeping up with lease accounting changes?

LeaseCrunch is always paying attention. The easiest lease accounting software on the market, LeaseCrunch helps organizations implement the new lease accounting standards, ASC 842, GASB 87 & 96, and IFRS 16. A simple but powerful tool, LeaseCrunch significantly reduces the time needed to transition, account for, and maintain leases.

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