Top Takeaways from the FASB’s Recent Lease Standard Activities
The FASB's recent lease standard activities emphasize maintaining the current lease accounting framework with minor adjustments, advocating for increased flexibility and practical expedients—such as allowing decision-making by asset class and simplifying discount rate determinations—to ease implementation and auditing for both public and non-public organizations, while ensuring transparency and usefulness of financial disclosures.
As we wrap up an unpredictable year, let’s explore the Financial Standards Accounting Board (FASB)’s recent roundtable discussions and new guidance on lease implementation for public and non-public organizations, and what we can expect for non-public implementation next year.
Don’t make big changes to the lease standard
Public companies understand the new lease standard now that they have completed their implementations. For the most part, the guidance works as intended and is a more transparent way for organizations to account for their leases.
Financial statement users are also gaining comfort in how they understand the impact of the new lease standard on an organization’s financial health. Disclosures are providing the needed information to analyze lease portfolios.
While organizations would like to see improvement, the consensus is that big updates could make future implementations more confusing. Listening in on the FASB’s September roundtable session, it was quickly apparent that the participants did not want sweeping changes. Instead, they are seeking additional flexibility and expanded practical expedients to simplify the accounting and auditing of calculations, while achieving the intent of the new lease standard.
Increase decision-making options
Leases within an asset class tend to have many similarities, including materiality, financing options, and terms. Implementing the new lease standard could be easier if more decisions, like methods for determining the discount rate, were decided by asset class. Real estate leases have a much greater impact on the financials than photocopiers and the effort required for decision-making ought to be similarly aligned.
In talking to Beth van Bladel, CPA about the recent discussions, I heard a similar desire regarding the incremental borrowing rate: “I believe private companies would welcome a practical expedient to reduce the cost and complexity associated with determining the incremental borrowing rate. The Private Company Decision-Making Framework was developed to assist the FASB and the Private Company Council in evaluating potential accounting alternatives such as this.”
Improve clarity around materiality
The new lease standard seemingly assumes that organizations would apply their typical materiality rules, but it’s not clear in the current guidance. As noted in the example above, they might like to use the federal discount rate for smaller items like photocopiers and expend greater effort when determining the discount rate for larger-value leases like real estate. The industry is looking for more guidance on materiality standards.
FASB wants the lease transition to be easy for non-public organizations
One thing I’ve noticed, especially recently, is that the FASB Board and staff genuinely care about accountants’ experiences and actively listen to participant concerns. At the roundtable, they asked additional probing questions to uncover the why behind the issue. They ultimately want the transition to be easy.
In October, the FASB proposed three targeted lease accounting changes (separate from the September roundtable) demonstrating their continued commitment to simplifying the new lease standard.
Delaying the new lease standard for non-public organizations has created a lack of financial statement comparability, which is a problem for industries where both public and non-public entities exist. At the same time, the delays provide the FASB with more time to propose further guidance that may ease non-public implementation of the new lease standard.
Need help keeping up with lease accounting changes?
Crunchafi (formerly LeaseCrunch) is always paying attention. The easiest lease accounting software on the market, Crunchafi Lease Accounting (formerly LeaseCrunch) helps organizations implement the new lease accounting standards, ASC 842, GASB 87 & 96, and IFRS 16. A simple but powerful tool, the software significantly reduces the time needed to transition, account for, and maintain leases.
To stay up-to-date on the latest lease accounting news, check out Crunchafi's resources.
Related
In the News: FASB Releases 2022 GAAP Taxonomy
The Financial Accounting Standards Board (FASB) released its 2022 GAAP Taxonomy update, introducing new reporting elements such as credit losses excluding accrued interest, reinsurance contracts, pledged assets, debt obligations with recourse, changes in reporting entity, balance sheet offsetting, and financial statement location clarifications, while also deprecating obsolete guidance, refining labels, and modifying references to enhance clarity and usability for accounting and financial reporting.
Lease Accounting Software
Crunchafi is a lease accounting software designed for CPA firms that automates complex lease accounting tasks by enabling collaborative data entry via a dual-access dashboard, generating instant audit-ready reports including journal entries and amortization schedules, utilizing AI to extract lease details from contracts for faster accuracy, and providing expert support and annual SOC compliance reports to ensure streamlined, compliant, and efficient lease accounting processes.
Crunchafi | Lease Accounting & Data Extraction
Crunchafi offers intuitive SaaS solutions for CPAs that automate lease accounting and financial data extraction, providing dual-access, audit-ready reports, standardized Excel outputs, and compliance with major accounting standards to streamline workflows, increase firm capacity, and enhance client relationships through secure, customizable, and user-friendly software with comprehensive support.
Step 2: Configure Policies
Step 2: Configure Policies allows users with Administrator or Accounting Administrator roles to enable firm access to accounts, mandate use of Lease Term and Classification Wizards for every lease, require review and approval for new leases, and manage lease accounting policy documents by downloading, completing, and uploading templates for firm-wide visibility.
ProNexus Selects LeaseCrunch® as Lease Accounting Solution to Clients
LeaseCrunch®, a cloud-based lease accounting software designed by former CPA auditors to help implement ASC 842 and IFRS 16 standards, has been selected by ProNexus, a non-attest finance and accounting firm with 12 offices in New York and Michigan, to provide lease accounting solutions including calculation of Right of Use assets and liabilities, amortization tables, journal entries, and disclosures for their clients.
Accounting Today names LeaseCrunch® as a top new product of 2019
Accounting Today named LeaseCrunch®, a lease accounting software developed by former CPA auditors and designed as an "audit in a box," as a top new product of 2019 for its customizable, user-friendly interface that simplifies compliance with new lease accounting standards, supports both CPA-led and client-managed bookkeeping, and includes features like audit guidance wizards, FASB and IFRS templates, and automated disclosures to efficiently handle complex lease portfolios.