Lease Rule Reporting Requires Company-Wide Effort, Practitioners Say

The Financial Accounting Resource Center™ is a comprehensive research service that provides the full text of standards, the latest news from the Accounting Policy & Practice Report ®,...

By Steven Marcy

Dec. 7 — Public companies should start early and involve all of their departments to ensure they prepare adequately for the leasing standards that take effect in 2019, corporate accounting and financial officers told an accounting conference.

Preparations for the new U.S. easing rules, ASC 842, are multifaceted and will require a thorough examination—quantitatively and qualitatively—of all company operations, the accounting practitioners told the American Institute of CPAs annual conference on Securities and Exchange Commission and Public Company Oversight Board developments Dec. 7.

Companies should also carefully examine their information technology systems to make sure they are capable of handling the data streams and calculations for identifying and quantifying the leases on their books, the accounting practitioners said.

A change in the definition of leases in the new standard means that some service-concession and other arrangements might have a lease contract embedded within them. Those must be checked carefully, the practitioners warned.

Inclusive Effort

“It’s imperative that it becomes more than just an accounting exercise,” assistant General Motors controller Brian Leiter said. “You must find ways to bring other parts of the business to the table” to get enough critical corporate mass to drive the project forward.

A company’s information technology personnel will prove to be critical participants because they must judge if new hardware or software is needed to meet the standard, Leiter said.

Leiter also urged companies to begin their preparations by examining the leasing standards’ transitions rules in which they could discover favorable treatment of their existing leases and interpretations that could help expedite them in putting the rules into practice.

Deloitte partner James Barker said his firm is urging its clients to take a “rigorous look” at all their contracts, including service concession arrangements, to see if some facet of such a contract is a lease. If an embedded lease is missed under current rules, the financial-reporting impact is small because many leases aren’t on the balance sheet.

But the new rules require most leases to be moved onto the balance sheet, and if corporate accountants miss the presence of an embedded lease and don’t present it on the balance sheet, then the company has an error that could trigger a financial restatement, Barker said.

“There are many, many potential leases that don’t say ‘lease’ on the cover,” Barker said.

To contact the reporter on this story: Steven Marcy in Washington at smarcy@bna.com

To contact the editor responsible for this story: S. Ali Sartipzadeh at asartipzadeh@bna.com

Copyright © 2016 Tax Management Inc. All Rights Reserved.

Request Financial Accounting