Dan Edwards, CPA with Crowe reviews the current international and domestic lease accounting standards. First, Dan explains the difference between a finance lease, also known as a capital lease, and an operating lease. Each of these leases is reported differently on an income statement and companies are not currently required to include an operating lease on their balance sheet. Due to the various reporting requirements for each lease type, it is difficult for investors and analysts to compare organizations effectively. Because operating leases are not being captured on a company’s balance sheet, there is limited transparency into the organization. As a result, two new leasing standards will come into effect to improve transparency.
The new lease accounting standards, known as IFRS 16 and ASC 842, are set to begin for public companies on January 1, 2019 and for private companies on January 1, 2020.
On the international side, IFRS 16 will institute the following changes:
In the United States, ASC 842 will mean:
The lease accounting changes placed upon companies by IFRS 16 and ASC 842 will require a significant overhaul to how lease accounting is done internally. As a result, many organizations are facing process and resource allocation issues in trying to become compliant with the new lease accounting standards.
Simon Little, CPA joins Dan to discuss potential pain points with the new lease accounting standards. Several issues are discussed:
Contact us to learn more about how the Crowe Lease Accounting Optimizer software can keep your business up to date when meeting industry standards.