When accounting for your leases, will you benefit from FASB’s response to Covid-19?

In anticipation of disruptions resulting from the Covid-19 Pandemic (Covid-19), on June 3, 2020, the Financial Accounting Standards Board (FASB) granted a one-year effective date delay for certain entities implementing the new lease accounting standard (Topic 842).  The effective date delays are as follows:

  • For private companies and not-for-profit (NFP) organizations to fiscal years starting after December 15, 2021.
  • For NFP organizations that have issued or are conduit bond obligors for securities that are traded, listed or quoted on an exchange or an over-the-counter market and which have not yet issued financial statements to fiscal years beginning after December 15, 2019.

 

On April 10, 2020, the FASB issued a Staff Q&A to provide operational interpretative guidance when accounting for lease concessions related to the effects of Covid-19.  In the Staff Q&A, the FASB deemed it acceptable for entities to treat lease contract changes resulting from Covid-19 as a lease concession rather than a lease modification.  Making this election will save time by eliminating the need to analyze each lease contract change and, if applicable, apply lease modification accounting.  There are two requirements to be able to make an election to account for a lease concession rather than a lease modification:

  • The lessee must be affected by the economic disruptions of Covid-19.
  • The lease concessions cannot result in a substantial increase in the lessor’s rights or lessee’s obligations. There must be a reasonable expectation that the total payments of a modified lease contract will be the same or less than the original.

 

If you want to read the Staff Q&A here is a link to the FASB website:

https://www.fasb.org/cs/Satellite?c=FASBContent_C&cid=1176174459740&pagename=FASB%2FFASBContent_C%2FGeneralContentDisplay.

 

If you prefer to leave the technical reading to us and want help evaluating the above implications or jump starting the Topic 842 lease accounting implementation process, please know that we have the experience to support you. Feel free to contact me at bvanbladel@bstco.com.