Whether you have one restaurant or multiple stores, the new accounting standard for leases is going to have a major impact on your financial statements soon. The Financial Accounting Standards Board (“FASB”) has overhauled the accounting treatment for all leases, putting an end to off-balance sheet leasing. Under the new standard, substantially all leases will be required to be recorded on your balance sheet, with a right-of-use asset and a lease liability. If you have any loans with covenants based on financial ratios, now is the time to begin analyzing the effect this will have on your balance sheet, as the additional liability could cause you to fail covenants previously met.
Why? Increases transparency of leasing arrangements and their financial impact, and improves comparability among companies.
When? 2020 (Interim and annual periods beginning after December 15, 2019); One year prior for public entities. Early adoption is permitted.
How? Lessees will record a right-of-use asset and a lease liability for the present value of lease payments. Lease expense will then be recognized over the term of the lease on a straight-line basis, with little impact to the presentation or recognition of expense or cash flows.
Want to learn more? Click below to learn more about the various aspects of the new standard. If you have additional questions or would like assistance in evaluating and adopting this new standard, contact Shelley Oswald, audit manager specializing in the Hospitality and Consumer Products industries.
Calculating Your Lease Obligation
Amendments to Leases
For more information, please contact Audit Manager, Shelley Oswald.