Understanding the Effective Date of the Lease Accounting Standard
In a pivotal decision made during its meeting on November 11, 2015, the Financial Accounting Standards Board (FASB) took a significant step towards revamping lease accounting practices. The Board, during this meeting, gave its in-principle approval for proposed changes to lease accounting standards, signaling a shift in how organizations will account for leases in the future. While the final leases standard wasn't published at that time, the anticipation was that it would be released in the first quarter of 2016.
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Guide to the ASC 842 Lease Accounting Standard
One of the notable takeaways from this meeting was the determination of
effective dates for the new standard. For public business entities, the FASB decided that the standard would be
effective for fiscal years beginning after December 31, 2018, which essentially translates to January 1, 2019. For
nonpublic business entities, the effective date was set for fiscal years beginning after December 15, 2019, or January
1, 2020.
These extended effective dates may not come as a surprise, given the complexity of the new lease
accounting standards and the Board's recent experience in deferring the effective date of the equally intricate revenue
recognition standard. The intention behind these extended timelines was to provide organizations with ample lead time to
prepare for and adapt to the impending changes.
While it may seem like these effective dates are far in the
future, it's crucial for all companies affected by the impending leases standard to begin preparations in 2016. It's
important to note that many leases executed in 2016 will be grandfathered into the new standard, emphasizing the need
for early readiness.
In conclusion, the FASB's decision marked a significant shift in lease accounting practices,
with updated standards expected to reshape how companies handle their lease agreements. To stay informed and prepared
for this transition, companies can refer to resources like [insert URL] for additional information. As the effective
dates draw nearer, proactive measures will be essential for a smooth transition to the new lease accounting standards.
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