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Q&A Forum

New Lease accounting rules

I was reading on the new regulations being implemented by FASB, while not scheduled to take place until 2018, the impacts could have significant impacts. Are you taking any proactive measures to mitigate the changes to lease accounting rules? I still think all of our leases will fall into Type B, but I'm certainly going to check into it.


Sean Egan
Title: Managing Partner
Company: iLease Management LLC
(Managing Partner, iLease Management LLC) |

If one has a significant lease portfolio, it makes sense to evaluate that portfolio as soon as possible to determine the impact of the changes and assess whether there is a need for a more advanced technology solution. Even if the leases are Type B, the leases will have to be recognized on the balance sheet and the computations necessary to determine the capitalized amounts are much more complicated than under current GAAP accounting.

Topic Expert
Robert Kugel
Title: Senior Vice President
Company: Ventana Research
(Senior Vice President, Ventana Research) |

It's essential that you determine to what extent your company's accounting for leases will be affected by the new rules. While FASB has made reporting less burdensome than what was in the initial draft, many companies will need to make changes to their processes and systems. Because of the way the rules are being implemented, companies that file their financial statements with the SEC are far better off beginning to phase in the process now rather than waiting for the rules to go into effect.

william bosco
Title: president
Company: leasing 101
(president, leasing 101) |

Complying with the news rules for Type B operating leases will be easy for US preparers. The P&L process remains the same as current GAAP, namely accrue the average rent and pay the actual rent. The balance sheet process is to record the present value of the remaining rents for all leases on each balance sheet date. This can be done easily using the information that lessees must keep to disclose future operating lease obligations in their footnotes under current GAAP. Assuming that info is kept on an excel spread sheet, all one has to do is add a cell with the appropriate incremental borrowing rate at the head of each column holding the future rents for each lease and add a PV formula in another cell. Then you run the PV calculation and the sum of the PVs of all the operating leases is the single "top level" journal entry to make each month. Any landlord concessions, prepaid rent and impairment are accounted for as a sub account to the lease asset (ROU asset) and amortized to rent expense straight line over the remaining term.


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