To delay or not delay: Which side of the coin are you on?
The FASB’s decision to delay the implementation of ASU 842 for private companies has drawn a mix of opinions. Some opinions, like Moody’s, are critical of the move, while the delay may be welcome to accountants, many of whom are underestimating the challenges of complying with the new standard, according to a new report.
In February 2015, ASC 842 (Leases) was added by ASU 2016-02 with the public adoption of it slated for public businesses to start Dec. 15, 2018. ASC 842 changes the way that operating leases are reported. The goal is to have operating leases and capital leases reported the same way.
Why make the change?
The change is viewed as a way to have better transparency when it comes to evaluating the financial health of a company.
Publicly traded companies were the first to adopt the new reporting rules. Those who have adopted the new lease reporting have said they significantly underestimated the amount of work that was involved in changing the way that operational leases were accounted for.
Why did they underestimate the amount of work involved?
Operational leases are often hidden in contracts. Businesses need to locate and evaluate all of their current contracts to determine if there is an operational lease within it. That takes time. It takes man-hours to read through all of the contracts. It also takes expertise to determine if there is a lease within the contract.
What’s the big deal?
While most accountants are welcoming the delay, others, like Moody’s, are critical of the proposed delay. In their eyes, the delay would compromise the ability to compare public to private issuers in the credit analysis process. The delay would also apply to two other changes in the standards affecting credit losses and hedging.
Which side of the coin are you on?
Do you prefer a delay or would you like to see it in effect now?
Want to make the most of the delays? This article from the Journal of Accountancy has some great ideas!