Anticipated business disruptions due to the COVID-19 pandemic prompted the FASB on April 8, 2020 to formally propose the following delays in the effective dates for implementing Topic 842, Leases:
- For private companies and private not-for-profit (NFP) entities to fiscal years starting after December 15, 2021.
- For NFP entities that have issued or are conduit bond obligors for securities that are traded listed or quoted on an exchange or an over-the-counter market and which have not yet issued financial statements to fiscal years starting after December 15, 2019.
Critical Lease Accounting Topics Affected by COVID-19:
- Short or long term lease concessions:
- Do you have enforceable rights in your contracts for lease concessions?
- Will there be changes that result in lease modifications and lease re-measurements?
- If there are concessions, how will that affect the materiality treatment on your financial statements?
- With interest rates dropping, a lessee’s Incremental Borrowing Rate (IBR) may be impacted when calculating right-of-use (ROU) assets and lease liabilities:
- How will this affect balance sheets when entering into new leases or re-measuring existing leases?
- With commercial real estate values and discount rates dropping, how will this affect the Fair Value and lease classification as either finance or operating leases are reassessed?
- Other considerations stemming from the COVID-19 pandemic and the economic downturn will be such things as the likelihood of exercising renewal options, terminations or purchase options.
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