Free Site Registration

More Debits & Credits Posts

Get Ready for Leasing Changes

By Michael Cohn
April 4, 2012

Ernst & Young is advising its clients to be prepared for the new lease accounting standards that are due to come out from the Financial Accounting Standards Board.

FASB and its counterpart, the International Accounting Standards Board, are planning to re-expose the latest version of the leasing standards in the second quarter of the year, though they still have a few issues to sort out after a disagreement recently emerged over income statement changes for lessees (see FASB and IASB Part Ways on Leasing Standards). However, the two boards are mostly in sync at this point on the main issue of carrying leases on the balance sheet, even though that’s still a sore point for many companies. The final standards are not expected to come out until mid-2013, but Ernst & Young is urging its clients to get ready.

“Some accounting standards only affect certain companies, but just about everybody has some lease,” said Betty Davis, a partner in Ernst & Young’s Financial Services Office. E&Y has been following FASB and the IASB’s re-deliberations over the standards after they were blitzed by comments criticizing the proposed changes in the initial exposure draft they issued.

Despite the prolonged re-deliberations and the upcoming re-exposure of the latest draft of the standards, FASB has indicated it won’t be an infinite delay until the new standards are finally in place.

“We’re saying to clients, ‘Have you been thinking about what you need to do to get ready?’” said Davis. “It’s difficult to get clients to spend lots of money on proposed guidance that may change, but we’re urging them to have the data available to make their calculations, and they should start thinking about whether they need some new software. This is not just an accounting department-only exercise.”

Davis noted that companies should be evaluating what makes sense from a business perspective about the impact on their financial situation, and how much to invest on the systems they will need. Some businesses function as both lessees and lessors. Financial institutions and real estate companies may fulfill both roles, especially if they have branch banks and offices that they lease. Airlines have plenty of aircraft that will be making their initial appearance on a balance sheet and the liabilities from those leases are going to grow. The debt-to-equity ratio is going to change at many companies, and financial analysts will need to compare the effects at companies across a given industry.

“Our key message at this point in the process is to start now,” said Davis. “Don’t wait until the final standard comes out. Get educated and start forming your teams. Follow the guidance as it develops. Think about what you can automate, and what packages might be available to automate and educate your stakeholders.”


Be the first to comment on this post using the section below.

Add Your Comments...

Already Registered?

If you have already registered to Debits & Credits, please use the form below to login. When completed you will immeditely be directed to post a comment.

Forgot your password?

Not Registered?

You must be registered to post a comment. Click here to register.

Follow Accounting Today


Deloitte’s Efforts at Greater Diversity and Inclusion

April 23, 2014

Deloitte vice chairman and chief inclusion officer Deb DeHaas discusses the firm's efforts at recruiting a more diverse workforce.

Trends in the Accounting Profession

April 18, 2014

Jim Metzler, former AICPA vice president of small firm interests, and founder of Metzler Advisory Group, talks about how the CPA profession is changing.

Lessons in M&A: Client and Staff Retention

April 14, 2014

Transition Advisors president Joel Sinkin talks about what firms should do after a merger to retain their clients and staff members.



More Taxpayer Misconceptions

April 21, 2014

Apparently, there’s no end to the ridiculous things taxpayers believe.

Dumbest Employee Excuses for Being Late

March 31, 2014

Running a little late could have big repercussions, especially at a firm in the midst of busy season. From escaped zebras to must-see TV, employers told CareerBuilder some of the most memorable excuses they've heard from tardy employees.

Common Taxpayer Misconceptions

March 19, 2014

The NAEA’s collection of ridiculous things tax clients believe.

The 10 Fastest-Growing Firms in the U.S.

March 10, 2014

The firms with the highest 2013 revenue growth in our Top 100 Firms/Regional Leaders list.

Top 10 Tech Trends for 2014

March 3, 2014

As companies gain more affordable access to new technology and platforms, they also seek to make smarter investments.