AccountLease™ Articles

AccountLease™ Articles, News

Hidden in plain sight: Accounting for embedded leases

By Stephen G. Austin, CPA; Joel C. Colbourn; and Kristen Gibbons | Originally posted on: www.journalofaccountancy.com

FASB’s new lease accounting standard is having a significant effect on a broad range of balance sheets for all types of entities, with some companies reporting financial obligations of billions of dollars.

In addition to requiring large sums to be placed on balance sheets, the new standard is causing difficulties for preparers as they struggle to locate and extract data from their many lease contracts so they can comply with the new rules. But this is not the only difficulty preparers are facing.

Under the new standard as codified in FASB ASC Topic 842, Leases, contracts that are not clearly identified or labeled as leases may be “arrangements that contain a lease.” For example, a lease may exist when equipment is provided by a vendor in connection with the purchase of consumables or the delivery of a service. Discovery and deeper evaluation of these arrangements where leases may be hidden in plain sight has been a significant challenge for many preparers.

FASB’s previous lease accounting standard, Topic 840, also required evaluation of these arrangements, although some may say that this analysis was not considered as thoroughly as it is now that the lease liability belongs on the balance sheet under Topic 842. Often under Topic 840, the many “service contracts” that met the “arrangements that contain a lease” criteria were classified as some type of operating expense other than rent expense.

The correction of this accounting is probably a classification issue in the income and expense statement.… Read More

AccountLease™ Articles, News

5 things you may not know about the lease standard

By Ane Ohm, LeaseCrunch  |  Originally posted on www.accountingtoday.com.

As with any accounting standard shift, the new lease standard (ASC 842) brings momentous changes to accounting processes and financial reporting. While the main differences are well-known, I’ve taken a particular interest in the smaller nuances that live within the new standard. (Yes, I’m an accounting nerd and I love learning about and discussing all things related to leases!)

In this article, I’m sharing five of those intricacies that you may not know about the new lease standard, but that are critical to making the transition.

1. Equity likely isn’t impacted

I recently got into an argument with a potential client about this one — not the best way to start out a new relationship! And I understand where he was coming from: When changes in an accounting standard impact assets or liabilities on the books, typically the difference flows through equity. In this situation, the new lease standard is unusual in that equity is most often not impacted for initial journal entries.

Here is the correct process to follow when transitioning leases from ASC 840 to ASC 842:

  1. Calculate your lease liability, which is the present value of all future lease payments after the initial application date.
  2. Remove existing lease balances, such as deferred rent. As you reverse these balances off the books, they should flow through the right-of-use asset, not through the equity balance as is common when implementing a new accounting standard.
  3. In most cases, the ROU asset is the lease liability, plus or minus the difference of those existing balances.
Read More
AccountLease™ Articles, News

Lease Accounting: A private company perspective

By Stephen G. Austin, CPA; Michael G. Fraunces, J.D.; and Alisia Scudder, CPA  | Originally posted on: www.journalofaccountancy.com

By now, most public companies in the United States have adopted the new lease accounting standards as required on Jan. 1, 2019. Companies with noncalendar fiscal year ends will adopt the new standards sometime over the next few months.

Moving the measurements of operating leases from the footnotes of GAAP financial statements under FASB ASC Topic 840, Leases, to the balance sheet as assets and liabilities under Topic 842, Leases, has not been a simple task for corporate America. Now, private companies and most not-for-profit organizations face the same task. Entities with more than a handful of leases may be in for a surprise as to the time and expense required to address the complexity of the transition and analyze the related accounting rules that must be considered. They may also be surprised with the effect on financial statements and, perhaps, loan covenants due to potential significant changes in debt and related ratios.

Here are some of the lessons learned from act one with the public companies:

Gathering documents is a chore

In many cases, document management systems for operating leases have been less than ideal and certainly not well organized to be “Topic 842-friendly.” In our work assisting a Fortune 100 company in its compliance with Topic 842, a major challenge was locating and organizing all the relevant documents for making the assessment. Our work included assessing, on the company’s behalf, thousands of its agreements to determine whether they constitute leases under the new standard.… Read More

AccountLease™ Articles, News, Press Release

AccountLease™ selects LeaseCrunch® as software platform for healthcare engagements

AccountLease is a strategic alliance between CPA firm Swenson Advisors and Cresa San Diego

MILWAUKEE – LeaseCrunch, the only lease accounting software made by former CPA firm auditors for CPA firm auditors, today announced that AccountLease will use their software platform to serve clients. 

Swenson Advisors LLP and Cresa San Diego launched AccountLease as a comprehensive solution designed to address the new lease accounting standards, which require companies to record substantially all real estate, equipment leases, and leases embedded in service agreements as assets and liabilities on their balance sheets starting as early as 2019 for publicly traded companies.

“We are pleased to be working with AccountLease, helping their clients navigate the new lease accounting reporting requirements,” said Ane Ohm, Co-Founder and CEO of LeaseCrunch.

Steve Austin, Managing Partner at Swenson Advisors, has been at the forefront of the new lease standard and led one of the first new lease accounting implementations in 2017. “LeaseCrunch is designed to accommodate the needs of companies with large, complex portfolios, while still being a cost-effective solution for companies with as few as 1-5 leases, who most likely have an office lease material enough requiring full implementation,” said Austin. “AccountLease is implementing LeaseCrunch at a major health system that has over 4,000 leases in their portfolio and a big reason for that was LeaseCrunch’s ease-of-use.  This project joins several Integra International firms, led by KSDT in Miami to provide a comprehensive team of specialists.”

“LeaseCrunch wants to help CPA firms enhance client relationships by providing essential features and innovative solutions through a simple interface,” said Ohm.… Read More

AccountLease™ Articles, News

Practical Considerations for Lease Accounting

By Steve Austin, Firm Managing Partner of Swenson Advisors  | Originally posted on: www.journalofaccountancy.com

On the heels of a transformative and challenging revenue recognition standard, FASB’s new lease accounting standard presents a potential tsunami of changes to the financial statements of public and private companies.

In February 2016, FASB issued new lease accounting guidance in Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). This new guidance was initiated as a joint project with the International Accounting Standards Board to simplify lease accounting and improve the quality and comparability of financial information for users. The IASB also issued guidance in IFRS 16 during January 2016.

This new guidance eliminates the historical concept of off-balance-sheet treatment for “operating leases” for lessees for the vast majority of lease contracts. Under ASU No. 2016-02 (Topic 842) and IFRS 16, at inception, a lessee is required to classify all leases with a term of more than one year as either finance or operating leases, with both classifications resulting in the recognition of a defined “right of-use” asset and a lease liability on the balance sheet.

These lease accounting changes are substantial and will require in many cases a significant investment of time and effort. These practical considerations can help entities as they implement the new standard:

  • A defined strategy and timeline will help an organization comply with the standard in time to meet the implementation deadline. Good project management and planning is paramount.
  • More time and effort will be required than most companies anticipate.
Read More
AccountLease™ Articles, News

New FASB Lease Accounting Standards Impact US Businesses in China

By Steve Austin, Firm Managing Partner of Swenson Advisors  |  Originally posted on www.china-briefing.com

US-based businesses with subsidiaries in China need to prepare financial statements that are consistent with US Generally Accepted Accounting Principles (GAAP) and the new Financial Accounting Standards Board (FASB) lease accounting standards.

While Chinese subsidiaries need to file financial statements consistent with China GAAP, often these financial statements need to be translated to US GAAP. Recent International Accounting Standards Board (IASB) standards have also changed the way leases are recorded in the financial statements in line with the new US GAAP standards.

The new lease accounting guidance

In February 2016, the FASB issued new lease accounting guidance [ASU No. 2016-02, Leases (Topic 842)]. This new guidance was initiated as a joint project with the IASB to simplify lease accounting and improve the quality of and comparability of financial information for users. The IASB also issued guidance in IFRS 16 during January 2016.

This new guidance eliminates the historical concept of off-balance sheet treatment for “operating leases” for lessees for the vast majority of lease contracts.

Under ASU No. 2016-02 (Topic 842) and IFRS 16, at inception, a lessee must classify all leases with a term of over one year as either finance or operating leases, with both classifications resulting in the recognition of a defined “right of-use” asset and a lease liability on the balance sheet.

However, recognition on the income statement will differ depending on the lease classification: finance leases recognize the amortization of the right-of-use asset separate from interest expense for the lease liability while operating leases recognize a single total lease expense.… Read More