The Financial Accounting Standards Board (FASB) has been working to finalize changes to the lease accounting standards. Recently, the AICPA Financial Reporting Executive Committee (FinREC) provided FASB with recommendations to the lease accounting proposal (see the full article at http://www.journalofaccountancy.com/News/20138910.htm). FinREC believes its recommendations would simplify what will be a very complex process of adopting the new lease standards once they are finalized.
The momentum of this project suggests that the “right of use” model, which generally requires leases with terms in excess of twelve months to be captured as an asset and liability on the balance sheet, will become a reality.
With that in mind, companies should take a close look at their current property and equipment capitalization policies to make sure they are reasonable in light of the size and nature of the company’s operations. A reasonable capitalization threshold may allow a company to determine that small leases would not be subject to capitalization under a “right of use model”. At a minimum, this may reduce the volume of leases that would require retrospective adoption of the new lease standards.
Allan Klose is an audit manager with the Attest Division of CBIZ & Mayer Hoffman McCann P.C.’s Phoenix office. Allan serves clients in a wide array of industries and serves as a key member of the firm’s nonprofit practice group. His extensive experience focuses on complex accounting issues including contribution accounting, agency transactions, and endowment accounting as well as assisting clients with the complex fair value (FASB ASC Topic 820) and lease (FASB ASC 840) reporting requirements. In addition to serving his clients, he speaks at various educational events both within the firm and externally to the public.