The Path of LEASE Resistance
Are you putting the fireworks, grills, and boats away after the 4th of July holiday? As you do, you may want to keep ASC 842 – Leases top of mind.
As you have likely heard, lease accounting under U.S. Generally Accepted Accounting Principles (U.S. GAAP) has changed for private companies for fiscal years beginning after December 15, 2021. For most entities, this means the rule is effective now, for calendar 2022.
Prior to the recent lease accounting pronouncement, U.S. GAAP only required leases classified as capital leases (now financing) to be recognized on the balance sheet. For leases classified as operating leases, payments were reflected in the financial statements as rent expense on the income statement and the lease commitments were included in the disclosures of the financial statements.
The core principle of the recent lease accounting pronouncement is that all leases (with minimal exceptions for certain leases) create an asset and a liability for the lessee. A lessee should recognize a liability to make lease payments (the lease liability) on the balance sheet and a right-of-use asset representing its right to use the underlying asset for the lease term.
This post is the first in our July lease series. Please stay tuned in the weeks to follow, as we discuss some of the finer points and considerations associated with lease accounting such as policy elections, lease population, practical expedients, related party leases, leasehold improvements, lease terms, discount rates, embedded leases, and other matters.
Our goal is to provide helpful hints and considerations as you start your lease accounting journey. As always, you do not have to walk this path alone. Sometimes a guide who knows the nuances of the new lease standard can make your journey more successful.
The considerations involved with the new lease standard can be complex. We are thankful for our clients and look forward to the opportunity to help this summer!
Thank you to Michael Westervelt and Brittney Fox who contributed to this post.
Allyson works for businesses of all sizes, maintaining a primary focus on business tax and consulting. She provides her clients with creative resolutions for technical tax issues and clearly interprets proposed and existing business tax law. Moreover, her thorough experience with trusts and estates allows her to deftly guide clients through the complicated legislation and the intricate processes involved in compliance, maximization of returns, and sustaining business and family wealth. She first gained knowledge and experience working for several years in a national firm, in a small firm environment, and in solo practice. She was also a partner in a regional legacy firm for 15 years prior to joining CLA. Her extensive tax experience bolsters CLA's talented staff and cultivates client relationships and makes her an invaluable member of the professional and civic communities.
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