US standard-setter set to delay lease accounting rule change

The Financial Accounting Standards Board (FASB) is considering deferring the implementation date for the new lease accounting standard by a year for private companies and non-profits in the US

It now plans to release a consultation on the proposed deferral this week after agreement at the July board meeting, when the US standard setter, FASB, told staff to draft a proposed Accounting Standards Update for vote by written ballot on the proposed amendments on proposals to defer the effective dates for the new lease accounting standard, Topic 842, Leases.

Following board discussions, FASB said that it had received sufficient information and analysis to make an informed decision on the perceived costs of the changes and that the expected benefits would justify the expected costs of the amendments in the proposed Accounting Standards Update.

If approved, this means that the mandatory effective date for Leases would be deferred for private companies and non-profits by a further year to 2021, although there will be no change to the implementation deadline for public business entities (PBEs), not-for-profit bond obligors, and employee benefit plans that file financial statements with the Securities and Exchange Commission (SEC).

Therefore, Leases would be effective for these entities after 15 December 2020 (1 January 2021, for calendar-year-end companies), and interim periods within fiscal years beginning after 15 December 2021 (1 January 2022, for calendar-year-end companies). Early adoption will be allowed.

This was only the second occasion that the US and global standard setter  - FASB and the International Accounting Standards Board (IASB) - have worked together to develop a joint accounting standard. The IASB version - IFRS 16 Leases - was rolled out from accounting periods effective 1 January 2019 with no deferral options offered by the IASB. The first joint project involved the recent revenue recognition standard.

‘While organisations await the FASB decision, one thing is clear: a delay is just a false sense of security,’ said George Azih, CEO of LeaseQuery. ‘Transitioning to the new standard is a complex, time-consuming process, even when you have the best team and tools on your side. Private companies, non-profits and government organisations should continue to move transition plans forward, and with haste.’

A survey of more than 200 US accountants by LeaseQuery found that just over half of public companies (54%) have completed their transition, meaning that many have further work ahead, even seven months after the deadline. Just 5% of private companies have completed the transition, with 58% in the early stages of assessing their implementation plan.

The comment period for the proposed update will be 30 days once the communique is issued this week, FASB confirmed.

At the same time, FASB is also considering deferrals for the implementation dates for revisions to hedging and credit loss accounting changes set out in Topic 815, Derivatives and Hedging, and Topic 326, Financial Instruments - Credit Losses (CECL), for certain US preparers outside the main public listed entities.

Sara White | 13-08-2019

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