Lease Accounting Standard Update
This blog was authored by my colleague Steve Schiltz, Financial Institutions Principal.
After the Financial Accounting Standards Board (FASB) approved a one-year deferral of the new lease accounting standard (ASC 842) due to the COVID-19 Pandemic, the effective date is fast approaching. The new standard is effective for private financial institutions (including banks and credit unions) for fiscal years beginning after December 15, 2021 (January 1, 2022 for calendar year-ends).
The new FASB rule requires that all lease agreements greater than 12 months (excluding lessor agreements) to be recognized on the balance sheet. Financial institutions will be required to identify all long-term lease agreements and perform a discounted cash flow calculation to determine the right of use (ROU) asset and lease obligation. Lease schedules will need to be created and maintained to track the ROU asset and lease obligation over time, post the required journal entries each month, and report the necessary disclosures in the financial statements.
One of many implementation pitfalls has been identifying the complete population of lease agreements. Most financial institutions automatically think of real property, but there may be embedded leases in other service contracts, such as automated teller machines (ATMs) and information technology equipment, that will need to be considered as part of the evaluation process.
Performing the analysis and calculations internally can be a significant time and resource commitment (both initially, and ongoing). CLA offers several lease accounting services, including an affordable turnkey lease accounting solution. We can help you identify lease agreements that are within the scope of the new standard and provide you with the lease schedules, journal entries, and comprehensive footnote disclosures. This will save you time and help facilitate your financial statement preparation.
Please reach out directly to your CLA representative or contact us if you would like to learn more.
Susan is a CPA with more than 20 years of combined experience in public accounting and the financial institution industry, including experience with Fortune 500 financial services companies. Susan serves as the managing principal of CLA’s financial services group. Her responsibilities include providing engagement oversight in the areas of assurance and internal audit. In addition, Susan provides board advisory and management consulting services in the areas of strategic planning and mergers and acquisitions. Susan has been involved in multiple mergers and acquisitions of sizes ranging from $150 million to $500 billion with engagement at all stages of the process.
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