FASB’s recent work schedule has included proposed improvements to income tax accounting related to the recent tax law changes, the 2018 GAAP financial reporting taxonomy, revenue recognition, derivatives and hedging, and lease accounting. FASB issued a proposed Accounting Standards Update (ASU) in early January 2018 to address implementation issues for ASU 2016-02, Leases (Topic 842), which will affect 2018 or 2019 financial statements. The 2016 ASU requires lessees to recognize lease liabilities based on the present value of remaining lease payments, and requires additional disclosures by lessors and lessees; the 2018 update concerns the separation of non-lease components from lease components and the adoption date (http://bit.ly/2rTgtNH).
This column details several useful and free sources of lease accounting information available on the Internet, including weblogs, videos, and a free lease calculator.
KPMG Financial Reporting View
KPMG’s Financial Reporting View blog (https://frv.kpmg.us) covers several topics in detail, and the Reference Library (https://frv.kpmg.us/reference-library.html) is an excellent source of information on FASB, IFRS, and SEC updates, as well as access to KPMG-sourced materials. The leases topic can be found at https://frv.kpmg.us/all-topics/leases.html. One outstanding free resource is KPMG’s 755-page lease accounting handbook, published in December 2017 (http://bit.ly/2Fxqylz). The handbook is written in clear, plain English, with easy to follow “mini-tables” on specific issues; it covers the definition of a lease, separating components of a contract, concepts and definitions for lessees and lessors, lessee and lessor accounting, and many other topics. The appendices include an index of Q&As, as well as a handy directory of examples that link back to the handbook discussion.
The annual “Accounting Change Survey: Revenue and Leasing” for 2017 (http://bit.ly/2rTUWVj) revealed that 60% of participating companies have met unexpected challenges, including identifying embedded leases and selecting and implementing a leasing system. Leasing implementation costs, including the need for new lease accounting software, have exceeded budgeted amounts for 40% of respondents. The 32-page survey results with action steps can be downloaded as a PDF format.
The webcast “New Leases Standard Implementation Part I: A Conversation with the FASB,” which originally aired in October 2017 (http://bit.ly/2rTViv7), covers application steps that companies should be taking to comply with the new standard, as well as KPMG perspectives and selected accounting implementation issues. It also includes a summary of KPMG’s survey of financial statement preparers on how they expect to be impacted by the new standards and the level of progress they are making toward implementation. “New Leases Standard Implementation Part II: Key Accounting Issues and Implementation Considerations,” which aired in November 2017 (http://bit.ly/2nyCWdJ), addresses technical implementation issues in more detail, such as the new definition of a lease, allocation to lease and non-lease components, asset impairment, accounting and reporting impacts, and systems and processes impacts. The webcasts run for 90 minutes each and include downloadable slideshows.
PricewaterhouseCoopers CFO Direct
Similar to KPMG, PricewaterhouseCoopers’s CFO Direct blog (https://www.pwc.com/us/en/cfodirect.html) presents information on a variety of accounting standards, financial reporting, and current regulatory events. The Lease Accounting webpage (https://pwc.to/2nrUd93) promotes PricewaterhouseCoopers’s Lease Accounting Guide, the In Transition newsletter issue on “Practical Insights on Lease Transition,” and a podcast series on various topics. The Lease Accounting Guide (https://pwc.to/2nmxCe8), updated in March 2017 and downloadable as a 283-page PDF and iBook application for iPads, discusses arrangements that fall under the new lease guidelines, classification and accounting for lessors and lessees, unique leasing transactions such as sale leasebacks and leveraged leases, and financial statement presentation.
The In Depth newsletter on “The Leasing Standard: A Comprehensive Look at the New Model and Its Impact” (https://pwc.to/2EoWsRD) offers a shorter read (20 pages) covering key provisions, contract considerations, lessor and lessee accounting, lease terms and other related topics. There is a very useful table that describes significant differences from the old standards and provides PricewaterhouseCoopers’s observations (p. 15). The Lease Accounting Industry Supplements webpage (https://pwc.to/2FxNP6Q) provides detailed guidance for 12 different industries, such as automotive, banking and capital markets, energy, insurance, and technology. Each industry has a short corresponding downloadable In Depth newsletter.
Other Free Resources
In addition to the more detailed materials discussed above, there are several other sources of quick and practical information on lease accounting.
PowerPlan (https://powerplan.com/lease-accounting/) is a commercial provider of lease accounting software. Website visitors who register for a free “Resource Guide to Lease Accounting Changes” gain access to a large number of materials, such as whitepapers, videos and webinars, articles, and infographics (http://bit.ly/2nvSpLd).
The whitepaper “8 Things to Know About the Lease Accounting Standards Changes” (http://bit.ly/2Gzcbyg) is a one-page summary that includes important reminders, such as that it is not too soon to start gathering lease data, that new testing criteria will be required in the future, and that lease agreements will have to be routed through a central accounting function. “The New Lease Accounting Standards: 9 Questions Financial Professionals Should Ask Now” (http://bit.ly/2GADFn1) is a two-page document covering how leases will be tracked differently, having sufficient contract review processes in place, and consideration of the potential complexities of reporting to different regulatory bodies. Common pitfalls discussed in “3 Mistakes to Avoid in Your Lease Compliance Plan” include not starting soon enough, not deliberating the impact on other departments, and not sufficiently evaluating software (http://bit.ly/2nw37Sa).
PowerPlan’s on-demand webinar “It’s an Iceberg: Preparing for the Full Impact of ASC 842 and IFRS 16 Lease Accounting Standards” is a 30-minute video that discusses making checklists for dealing with new leasing issues, the need for perpetual compliance when companies have multiple leased assets, and strategies for more efficiently managing compliance (http://wi.st/2rR2N60).
FASB Update Links
- FASB Accounting Standards Issued Updatehttp://bit.ly/2npiTiy
- January 2018 Lease Accounting Exposure Drafthttp://bit.ly/2DLHLHd
- FASB In Focus Newsletter on Leases Standardhttp://bit.ly/2ErDTfL
- FASB Understanding Costs and Benefitshttp://bit.ly/2GAEsEv
- Baruch Newman Library Free Public Access to FASB Accounting Standards Codificationhttp://bit.ly/2DRp1KA
FASB’s website offers several educational resources on the lease standards, including three short videos (“Putting Leases on the Balance Sheet,” “Leases: A Quick Example of the Display Approach,” and “Why a New Leases Standard?”), as well as a longer webcast, “Accounting for Leases Primer—New Rules Effective for Calendar Year 2019” (http://bit.ly/2DQ4Etj). The primer webcast presents an overview of the new lease model, discusses the new approaches for finance and operating leases and differences with IFRS 16, provides several practical examples, and addresses financial statement disclosures.
Finally, ContractNet (http://contractnet.io/accountants/), a commercial provider of contract administration software, addresses a variety of contract types including leases. The website offers a free lease calculator (http://bit.ly/2DNCJOu) that includes input for lease term information, lease costs to capitalize, and lease considerations; it outputs an ROU asset schedule, a liability schedule, and an amortization schedule, all of which can be exported to Excel.