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New Lease Accounting Standard is Delayed

 New Lease Accounting Standard is Delayed

On November 15, 2019, the U.S. Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-10, which delays the effective date for the new lease accounting standard for private companies and certain other entities from fiscal years beginning after December 15, 2019 to fiscal years beginning after December 15, 2020. Early adoption is still permitted.

One of the more significant reasons cited by proponents of this delay is that private companies are still in their initial year of transitioning to the new revenue recognition standard, which became effective for private companies for fiscal years beginning after December 15, 2018. Additionally, the extra year will allow private companies to gather relevant data and better consider the effects of the standard on their business, understand issues public companies (which had to implement the new standard for fiscal years beginning after December 15, 2018) have had in implementing the standard, and evaluate available software solutions that have become available to assist in complying with the standard.

The most significant difference between existing U.S. Generally Accepted Accounting Principles (GAAP) and the new standard is that most operating leases will be required to be recorded on the balance sheet by recognizing a right to use asset and a related lease liability, measured at the present value of lease payments. The asset is then amortized over the lease term and the liability is relieved as lease payments are made. Accounting for capital leases, which are referred to as financing leases under the new standard, is largely unchanged. For additional information on the new lease standards and their possible effects, see our article published on April 14, 2016, or click here.

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Article contributed by Michael Malinsky.