Learning from Experience: Supporting a Smooth Transition to the Leases Standard

By Chris Roberge, FASB Senior Project Manager

In early April 2020, the FASB will host a public roundtable focused on implementation issues related to the leases standard. During the roundtable, a select group of public company preparers and representatives from accounting firms, industry groups, and FASB advisory groups will provide input on their experience implementing the standard, including issues that may cause ongoing challenges for all stakeholders and those that could be addressed before private companies and organizations are required to adopt the standard.

Based on what we learn during the roundtable, the Board and staff will consider whether it’s necessary to modify, clarify, or provide additional interpretative guidance around the standard to help promote a smoother implementation experience. This will include consideration of the costs and benefits to all stakeholders—including those who have already adopted the standard—that may result from any potential changes.

Stakeholder Input Drives Implementation Improvements

The roundtable is the latest in a series of actions taken by the FASB and its staff to support stakeholders’ successful transition to the standard. Issued in February 2016, Accounting Standards Update No. 2016-02—Leases (Topic 842), was intended to increase transparency and comparability among organizations by requiring lessees to recognize assets and liabilities arising from operating leases on the balance sheet and to disclose key information about leasing arrangements. It also made minimal changes to lessor accounting to align the requirements with lessee guidance and other areas within generally accepted accounting principles, such as revenue recognition.
The roundtable is the latest in a series of actions taken by the FASB and its staff to support stakeholders’ successful transition to the standard.

After the standard was issued, the FASB continued to conduct outreach with key stakeholders. Thanks to their involvement in the standard-setting process, the Board issued several narrow-scope improvements to the leases standard during 2018 and 2019. The changes were made to ease implementation and, in certain circumstances, simplify the guidance without compromising the primary objectives of the standard.  The FASB also continued to develop several implementation and education resources  and to help people understand the standard with services, such as the FASB’s technical inquiry service.

Since then, thousands of companies have adopted the leases standard, which was effective for all public business entities, not-for-profit conduit bond obligors, and public employee benefit plans for fiscal years beginning after December 15, 2018. The FASB has continued to monitor the public company implementation experience to determine if additional improvements should be made before private companies and organizations are required to adopt the standard.

Effective Date Delay for Private Companies and Organizations

The implementation challenges encountered by public companies, and the fact that private companies continue to wrap up their implementation of the revenue recognition standard, prompted the Board to grant private companies and other organizations an additional year to adopt the leases standard.  In November 2019, the Board officially deferred the leases standard effective date to fiscal years beginning after December 15, 2020, for private companies, not-for-profit organizations (excluding not-for-profit conduit bond obligors), and nonpublic employee benefit plans.

The deferral gives private companies and organizations additional time to learn from the implementation experiences of public businesses. This will allow them to identify key issues that were encountered and resolved, consider best practices for implementation and disclosure, and collect the data and information technology needed to support the application of the standard.

With most private companies and many not-for-profit organizations just starting their lease implementation efforts, the FASB will continue to engage with preparers and practitioners to identify opportunities to clarify or simplify implementation of the standard. This outreach—and your input—help us understand (a) any significant transition issues experienced and (b) any areas that those who have adopted the standard expect to cause ongoing complexity and costs.

Stay Informed (and Keep Us Informed)

The public roundtable will be announced on the calendar of public meetings on the FASB website; we encourage you to tune in to the live webcast of the event. We also encourage you to contact the FASB staff with implementation questions on leases and other standards using our technical inquiry service.

The views expressed in this article do not necessarily reflect the views of the FASB. Official positions of the FASB are arrived at only after extensive due process and deliberation.