By Renae Kinney, GreatAmerica – You may have heard about the Financial Accounting Standard Board (“FASB”) issuing a new lease accounting standard. After many years of focus by the FASB on the transparency of “off-balance sheet” obligations, the FASB issued a new lease accounting standard in February 2016. Just recently, the FASB has issued updated guidance that can make the adoption of the new lease accounting standard less complex.
Originally, the new lease accounting standard would require companies to recognize and measure leases at the beginning of the earliest period presented in their financial statements, also known as the “modified retrospective transition method.” This means that a private company adopting the new lease accounting standard on January 1, 2020 would have to present both the 2019 and 2020 financial information in their 2020 comparative financial statements under the new lease accounting standard. In addition, the company would also need to provide the new and enhanced disclosures for each period presented, including the 2019 comparative period.
With the recent update issued by the FASB, companies have an additional (and optional) transition method to adopt the new lease accounting standard. Under this transition method, companies will initially apply the new lease accounting standard at the adoption date, as well as a cumulative-effective adjustment to the opening balance of retained earnings in the period of adoption. In other words, a private company adopting the new lease accounting standard on January 1, 2020 would present the 2019 financial information in their 2020 comparable financial statements under current lease accounting guidance with the 2020 financial information presented under the new lease accounting standard along with a cumulative-effect adjustment to the opening balance of retained earnings.
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