skip to main content
X

Solutions for Implementing the New Lease Accounting Standards

Solutions for Implementing the New Lease Accounting Standards

What is the new lease accounting standard?

ASC-842, the new lease accounting standard, has been in effect for private companies with fiscal years ending December 31 since the beginning of the year, and for public companies since 2019. ASC-842 provides a new definition of a lease based on whether one party obtains the right to control the use of an identified asset for a period of time in exchange for consideration. It also classifies all leases as either finance or operating and there is no scope exception for leases of low value assets such as personal computers or copiers.

However, lessees can elect an accounting policy to not recognize the lease terms that are for 12 months or less in duration and where there is no option to purchase the underlying asset.

Accounting used by lessors remains largely unchanged from current generally accepted accounting principles (“ASC-840”). However, the new standard does make some targeted improvements, updates revenue recognition requirements (for example, assessment of collectability in order to qualify for sales-type lease or direct financing lease), and adds disclosures.

How will this impact your business?

The new standard will cause major changes in lessees’ balance sheets (or statements of financial position) and disclosure requirements. ASC-840 does not require assets and liabilities to be recognized for most lessees. Under ASC-842, all lessees must report in their balance sheets a “right-of-use” asset, representing the right to use the underlying asset during the lease term, and a liability to make lease payments over the lease term. Recognition, measurement, and presentation of expenses and cash flows in the lessees’ other financial statements won’t change significantly.

Implementing the new lease accounting standards

Almost a year into its effective date, your business should at least be in the early stages of transitioning to these new standards to ensure compliance. The leaders of our audit practice, Marc Lichtman and Michelle Felmlee, have been planting the seeds with clients and assisting with the transition and have been searching for an innovative solution to implementing these complex standards. We’ve partnered with LeaseCrunch in order to facilitate a simple and smooth transition to an otherwise arduous and complicated process.

LeaseCrunch was built by accountants for accountants and is a highly intuitive software that will require less labor and time than alternatives. Felmlee and Lichtman have been guiding clients through the transition to the new standards via LeaseCrunch for the better part of the year and have seen faster implementation, less time spent for acclimation and training, greater accuracy and a reduced total cost of ownership.

Our experienced audit partners and lease accounting specialists have been monitoring all aspects of the new standards and are well equipped to brief your team and act as a partner to make sure your business transitions smoothly and meets compliance requirements.

 

09/16/2022

Have a Question?

Fill out the form below to speak with an audit professional.

Hide Firm Disclaimer

©2022 UHY LLP. ALL RIGHTS RESERVED.

UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc., and its subsidiary entities. UHY Advisors, Inc.’s subsidiaries, including UHY Consulting, Inc., provide tax and business consulting services through wholly owned subsidiary entities that operate under the name of “UHY Advisors” and “UHY Consulting”. UHY Advisors, Inc., and its subsidiary entities are not licensed CPA firms. UHY LLP, UHY Advisors, Inc. and UHY Consulting are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. “UHY” is the brand name for the UHY international network. Any services described herein are provided by UHY LLP, UHY Advisors and/or UHY Consulting (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.

On this website, (i) the term "our firm", "we" and terms of similar import, denote the alternative practice structure conducted by UHY LLP and UHY Advisors, Inc. and its subsidiary entities, and (ii) the term "UHYI" denotes the UHY international network, in each case as more fully described in the preceding paragraph.