This month the Financial Accounting Standard Board (“FASB”) decided to move forward with issuing an Accounting Standards Update (“ASU”) pertaining to the accounting treatment of leases. The ASU is expected to be final in early 2016. The update, which has been in deliberations for multiple years, will essentially require leases currently classified as operating leases to be recorded on the balance sheet. Recording these leases on balance sheet will result in a higher value of liabilities being reported along with a related asset, which may impact various financial ratios. The final standard is expected, in many cases, to provide for straight-line expensing of the affected leases consistent with the current P&L impact.
The affected leases are those in which the lease term is for greater than one year but is an insignificant part of the total economic life of the underlying asset, the present value of the lease payments is insignificant relative to the fair value of the underlying asset at the commencement date, and there is no economic incentive to exercise an option to purchase the underlying asset. Leases currently classified as capital leases and recorded on the balance sheet will not be significantly affected and will continue to be recorded in the same manner in most cases.
For nonpublic business entities, it will be effective for fiscal years beginning after December 15, 2019 with early application will be permitted upon issuance of the final standard. We will provide more in-depth analysis of the new ASU and how it will impact your business upon final issuance from the FASB.
If you would like more information on this update, how your company may be affected, and other potential tax benefits, Barnes Dennig wants to help. For additional information, please call us at 513-241-8313 or click here to contact us. We look forward to speaking with you soon!