Friday, February 12, 2016

Lease Accounting Standard and Private Companies




Anthony LaNasa, CPA, CFE
Managing Principal - Columbus
 
The U.S. Chamber of Commerce and other trade groups are trying to get the new lease standard expected to be published this month exempted from Private Companies.  In a January 29, 2016 letter to the Financial Accounting Standards Board (FASB), the trade groups state they do not feel the FASB adequately considered the differences between private and public companies.  This new standard will require all leases (those more than 12 months in duration) to be recorded as assets (right to use asset) and debt on all company’s balance sheets.  This is a significant change from prior guidance related to operating leases that were expensed as paid by companies.
 
The letter states:   “We are concerned that the decision to apply the soon-to-be finalized lease accounting standard to private businesses will exacerbate complexity, not meet the needs of private company investors and harm capital formation for those businesses. Such a decision would presume that users of private company financial statements would prefer capitalizing leases on balance sheets. However, since users of private companies are different than public company financial statement users in both composition and motivation this may not be the case”.  The link to the letter is http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175832675827&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=534659&blobheadervalue1=filename%3DLEASES-16.UNS.0021.U.S._CHAMBER_OF_COMMERCE_SEE_LISTED.pdf&blobcol=urldata&blobtable=MungoBlobs
 
The new standard will apply to all companies (private, public, and nonprofit) and is expected to be released this month.  However, stay tuned to potential last minute changes based on negative reaction such as this.