FASB Proposes Delay to Upcoming Changes in Leasing Standards
July 18, 2019: The U.S. Financial Accounting Standards Board (FASB) has proposed delaying the upcoming leasing standards for privately held companies. The standard was scheduled to be effective for annual periods beginning on January 1, 2020; however, that effective date would be moved back to January 1, 2021 due to the proposed delay. Based on comments made by members of the FASB, it appears this change will become official within the next few weeks.
The new leasing standards require a change of how companies report leased assets and liabilities within their financial statements. In the past, companies included their operating lease obligations within the footnotes of their financial statements; however, under the new standard, companies will be required to show all leased obligations on their balance sheets.
Due to the complexity of the standard, the FASB has reconsidered effective dates due to large amounts of time required to educate staff and challenges in the development of proper IT software systems. The delay will allow private companies the opportunity to learn from implementation issues that have been published in SEC comment letters from large companies filing using the new leasing standards, which began for publicly held companies in January 2019. Although the delay will not make the new standard mandatory until January 2021, privately held companies may choose to implement the new standard early and still begin in January 2020.
While the one-year delay will benefit many privately held companies, the lease accounting changes for public business entities, employee benefit plans, and not-for-profit conduit bond obligors have already taken effect in January 2019 and will not be affected by this delay.
Along with delaying the leasing standards until January 2021, the FASB has also proposed delaying other upcoming standards for privately held companies. This includes extending the effective date of the Accounting and Credit Losses standard two years to January 1, 2023 and the Derivatives and Hedging standards one year to January 1, 2021.
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Article prepared by Dalton Weller.