By: Pedro T. Rincon, CPA, CVA, Osborne Rincon CPAs
Effective January 2020, companies will be required to account for leases differently than in the past. Currently, operating leases are expensed through a company’s income statement.
The new accounting standard now requires lessees to recognize a liability to make lease payments and a right-to-use (ROU) asset representing their right to use the underlying asset for the lease term.
The result? Companies are going to see huge impacts on their balance sheets, although the expense recognized in the income statement will most likely not be affected. Implementation of this new standard will be challenging.
These implementation challenges will require companies to develop a robust project plan that involves many steps. For example, companies will need to:
Take inventory of their contracts that are or may contain leases
Develop systems and processes to capture the data and information necessary to record and disclose their leases
Educate investors and analysts on the impact of the new leases standard on financial statements and various metrics (e.g., debt ratios)
Update their accounting policies.
For more information call Osborne Rincon CPAs at 760-777-9805