On July 17, 2019 the Financial Accounting Standards Board (FASB) voted to issue a proposal that would require the implementation of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) for private companies. The primary difference between Topic 842 and the previous guidance under Topic 840 is the requirement of the lessee to recognize an asset and corresponding liability for all leases. The new standard was slated to go into effect for non-public companies for annual periods beginning after December 15, 2019 prior to the proposal to delay this implementation.
Per the tentative board decisions section of the FASB website :
“The Board decided to defer the mandatory effective date for Leases for all other entities [non-public entities] by an additional year. Therefore, Leases will be effective for all other entities beginning after December 15, 2020 (January 1, 2021, for calendar-year-end companies), and interim periods within fiscal years beginning after December 15, 2021 (January 1, 2022, for calendar-year-end companies). Early adoption will continue to be allowed.”
The FASB appears to have recognized that for smaller private companies, adopting an accounting change of this magnitude will take time and significant effort as lease processes and controls are changed. Some entities are still implementing the new revenue recognition guidance that went into effect in 2019 which increases the burden on accounting staff. Private companies will now be able to gain more insight into how public companies are implementing this ASU. Software companies also have the opportunity to catch up and provide solutions for their customers.
Despite this delay being a relief for many private businesses, it should not be thought of as a reason to procrastinate but rather an opportunity to not fall behind.
For more information on the new lease standard, refer to our blog on the new rules for lease accounting at http://www.isdanerllc.com/news/2019/05/new-rules-for-lease-accounting/.