Not up-to-speed on the new lease accounting rules? No worries. This week’s GAAP Flash includes a collection of articles about the accounting for leases under both the old (ASC 840) and new (ASC 842) lease accounting standards.

New Rule to Shift Leases Onto Corporate Balance Sheets (February 25, 2016) – The Wall Street Journal (@wsj)

Accounting rule makers made their overhaul of lease accounting official by issuing a new rule that will require U.S. companies to add huge amounts of leases to their balance sheets. Under the FASB’s new rule (ASC 842), companies will look more leveraged as they add to their books debt-like obligations they incur when they pay to lease real estate, airplanes, office equipment, and other items. Currently (under ASC 840), companies are required to disclose their operating lease obligations in the footnotes to the financial statements.

Some large companies, especially in the retail, telecommunications, and airlines industry, may have to add tens of billions of dollars in leases to their balance sheets. According to some estimates, corporate balance sheets could swell as much as $2 trillion. “It puts things in a more transparent condition,” said James Kroeker, the FASB’s vice chairman. “It adds light to one of the last remaining crevasses of off-balance-sheet accounting.”

Companies Will Need to Adjust to New Leasing Standard (February 25, 2016) – Accounting Today (@AccountingToday)

Now that the FASB has released its long-awaited lease accounting standard (ASC 842), companies and their accountants need to get ready to put their operating leases on the balance sheet. This includes inventorying existing leases and calculating the asset and liability amounts at the date of adoption to include them on the balance sheets. “There’s a significant amount of effort around data, and systems and technology and processes that will need to be comprehended to comply,” said Sean Torr, advisory director at Deloitte & Touche LLP. The new rules take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

It should be noted that although the leasing project started as a joint project between the FASB and IASB, it didn’t end up as a converged standard. The differences between ASC 842 and the version released by the IASB (IFRS 16) mainly relate to the expense attribution of the various leases. Also, not all FASB members agreed with the new standard as noted in this article about the dissent of Marc Siegel, FASB member. However, this article notes the Equipment Leasing and Finance Association is pleased with the new standard.

How to Comply with the New Leases Standard (February 26, 2016) – Journal of Accountancy (@AICPA_JofA)

Currently, many companies are using spreadsheets for this lease accounting. Leasing under current GAAP (ASC 840) is a “set it and forget it” model, said Sheri Wyatt, managing director at PwC’s capital markets and accounting advisory practice. However, adding a lease liability under the new rules (ASC 842) may require reassessments more frequently and, as noted by Ms. Wyatt, it’s “debatable” whether spreadsheets will still suffice. The article notes four key considerations Ms. Wyatt recommends for companies as they work to comply with the new leasing standard:

1. Getting a handle on all of a company’s leases and properly tracking them, wherever they are, is an important step in complying with the new standard.
2. Companies need to have early conversations with stakeholders about the financial impact of the new standard.
3. By analyzing the impact on financial statements, companies may come to different decisions about whether to lease or purchase equipment or identify other areas of cost savings.
4. Multinational companies may face challenges since the ASC 842 and IFRS 16 are not converged.

A Silver Lining to New Lease Accounting Rules: Savings (February 25, 2016) – CFO Journal (@CFOJournal)

Although companies have entered into thousands of leases, chief financial officers and financial controllers rarely tracked them. However, with corporate balance sheets swelling by as much as $2 trillion, according to some estimates, this is about to change. The increased transparency of companies’ lease portfolios has the potential to cut costs across the organization. Negotiating interest rates, and not just equipment costs, can save companies around 7% on a new lease, said Michael Keeler, chief executive of LeaseAccelerator. Meanwhile, returning equipment on time and pursuing new lease contracts, rather than letting leases rollover indefinitely, can save companies 10% to 12% of the annual lease cost, Mr. Keeler said. However, the immediate challenge for companies lies in creating a process for capturing lease data, as most only track their real estate leases.

FASB Leasing Update: Five CFO Action Items (February 26, 2016) – CFO.com (@cfo)

Before ASC 842 becomes effective, companies will need to assess how widespread its effects will be so they can plan for needed business and process changes. KPMG partners, Kimber Bascom and Dean Bell, said CFOs should focus on the following five key action items from the outset:

1. Analyze existing contracts and make the best use of new lease agreements.
2. Ensure executive sponsorship of the adoption process and set up a team approach.
3. Define a roadmap early on to streamline adoption and final implementation.
4. Prepare to communicate more information about leasing transactions to investors.
5. Decide whether to adopt the new revenue recognition (ASC 606) and leasing standards in sequence or at the same time.

With respect to KPMG, their Financial Reporting Network has put out numerous documents available at this site to help companies get familiar with, and begin to plan for, the new leasing standard.