A recent decision by the Financial Accounting Standards Board (FASB) gives privately held organizations an additional year to prepare for the new lease accounting standard. The transition could prove to be more complicated than many expect, so that extra time can be valuable.
As part of its response to the COVID-19 pandemic, the FASB postponed the effective date of its new lease accounting standard – Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842),” for privately held entities by one more year. As a result, nonpublic companies and not-for-profit organizations are required to begin using Topic 842 for lease accounting in fiscal years beginning after Dec. 15, 2021, and for interim periods in fiscal years beginning after Dec. 15, 2022.
While the board’s decision was welcome news, it’s important to remember it is only a deferral – not an exemption. Early adoption is permitted, so some organizations may choose to go ahead and make the transition as originally scheduled anyway.
For other organizations, however, the deferral offers more time to work through pressing business, resource, and accounting challenges stemming from COVID-19 prior to executing their Topic 842 implementation plan. Though many organizations are balancing resources delicately in light of the COVID-19 pandemic, the deferral also provides organizations with extra time to develop their implementation plan and examine some lessons learned from companies that already have adopted the new standard.