Private Companies Have Another Year To Deal With New Lease Accounting Standards, And They’ll Probably Need It
By | Originally posted on: Bisnow.com
The Financial Accounting Standards Board has given U.S. private companies and nonprofits another year to start treating their operating leases as liabilities on their balance sheets. Now they have to do so beginning in their first fiscal year after Dec. 15, 2020, rather than after Dec. 15, 2019, as originally planned.
The change would add a significant number of liabilities to the books of companies with a lot of leased space, so companies with cash and an aversion to debt may opt to buy buildings, if possible. Other companies might turn to coworking or other short-term space. But the jury is out on whether that will happen.
In any case, the extension is good, accountants and leasing brokers said, but no reason to procrastinate on making the switch.
“In our three-plus years of working on this, it’s clear that most companies have drastically underrated the complexity of this process and the time and effort to complete the task,” said Cresa Managing Principal Don Mitchell, who is in the company’s San Diego office. “It can be daunting.”
“Applying the standards has posed a more difficult challenge than originally thought,” said CohnReznick Director Matthew Derba, who is in the company’s New York office. “I believe the deferral by FASB is a direct reflection of that.”