Lease accounting standard

Understanding the new standards 

New lease accounting standards contain dramatic changes that may affect the future of your organization’s balance sheet. The ASU No. 2016-02, “Leases (Topic 842)” and IASB-issued IFRS 16, “Leases” deadlines are quickly approaching, and any entity that enters into a lease will need to comply.
“Leases” deadlines are quickly approaching, and any entity that enters into a lease will need to comply.
More transparency
Stakeholders will gain a clearer view into an organization’s leasing activities and their effects on the financial statements.
Bigger balances
Lessees will be required to recognize most leases “on balance sheet.”
Dual effect
Changes will affect not only lease accounting policies but also the systems used to manage them.
Limited resources
Companies may experience resource constraints as they manage implementation while still supporting their regular accounting processes.
Ongoing compliance
Processes and controls that govern lease acquisition and modification will need to be addressed.
Tax implications
Accounting changes could affect the organization’s income tax reporting.
More transparency
Stakeholders will gain a clearer view into an organization’s leasing activities and their effects on the financial statements.
Bigger balances
Lessees will be required to recognize most leases “on balance sheet.”
Dual effect
Changes will affect not only lease accounting policies but also the systems used to manage them.
Limited resources
Companies may experience resource constraints as they manage implementation while still supporting their regular accounting processes.
Ongoing compliance
Processes and controls that govern lease acquisition and modification will need to be addressed.
Tax implications
Accounting changes could affect the organization’s income tax reporting.

The road to compliance 

Organizations that engage in leasing need to prepare for implementation. Early adoption is permitted, but being late is not an option. Additionally, companies should consider other ramifications of applying the new leases standard beyond the organization’s financial statements, such as the impact on key financial ratios included in debt covenants or key performance indicators used to manage the business.

  1. Assess the scope. Companies need to identify their current and in-process lease agreements as well as relevant policies, procedures, data, and systems involved. Various departments – including accounting, finance, operations, logistics, legal, tax, and IT – should be represented.
  2. Select an approach. Significant planning should go into the selection of a transition approach and required system enhancements. This includes selection of practical expedients and organization of the lease accounting function.
  3. Plan for transition. Develop a project plan and secure necessary resources to meet the effective date.
  4. Implement and monitor. Execute the plan, monitor status, and communicate with relevant stakeholders with a goal of full compliance on or before regulatory effective dates.

Crowe can help – anywhere along the way 

Whether you have just begun your compliance journey or are well on your way down the path to compliance, our experienced accounting, consulting, and technology professionals are here to assist. We can help you through the process to help you optimize your compliance efforts.

  • Scoping and assessment
  • People, process, and controls
  • Technology enablement
  • Analysis and implementation

Contact us

With deep subject-matter expertise and practical industry experience, all supported by advanced technology, Crowe serves clients with global reach and global needs. Contact us today.
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William Watts - social
William C. Watts
Principal