For private entities preparing to comply with the new lease standard (ASC 842) slated for January 2020, FASB has released an update (Accounting Standards Update 2018-11) to the new lease standard that stands to benefit companies applying the new standard.
How Can this Update Benefit your Company?
In short, the update offers relief cost savings, as well as some practical expedients in applying the new lease standard. Here are a few of the key highlights of the standard that biofuels companies could potentially apply:
- Transition Relief – a new (and optional) transition method allows entities to initially apply the new lease guidance at the adoption date, and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption, while continuing to present the comparative periods.
K·Coe Isom’s accounting experts explain: many companies will take advantage of this new transition method considering the cost savings it offers. However, even with this relief, companies shouldn’t delay their implementation projects, given the amount of effort still required.
- Separating Components of a Contract by Lessors – the amendment provides lessors with a practical expedient to not require the separation of lease and non-lease components of a contract.
K·Coe Isom’s accounting experts explain: the lessor practical expedient should be a welcome change for many entities as it basically enables them to account for their transactions under the new lease standard in a manner similar to how they have accounted for them in the past.
Potential for Tax Implications
This implementation of the new lease standard, and its update, should be reviewed in full detail for its application to each lessor/lessee. While these new standards have received a lot of attention from the financial reporting community, the potential for income tax consequences should not be overlooked and should be assessed by your accountant.
Want More Information?
Due to the fact that there are many other considerations that are important to understand and evaluate for what qualifies and which options are applicable, K·Coe Isom has recorded a webinar to help biofuels companies address the new lease standard, and cover the FAQs it has received to date: Lease Standard Webinar.
Contact K·Coe Isom’s Accounting & Audit experts with questions surrounding compliance to the New Lease Standard, and the applicability of the recent update.