Equipment leases and the impact of the new accounting standards


With the new accounting standards, equipment leases with a duration of more than 12 months must be recognized on the balance sheet. This change in financial reporting has had a huge impact on companies who are not prepared to handle the mammoth task of sifting through the equipment leases and making the necessary transition.

Here is a step by step guide to help you through the transition process

  1. Take an inventory of all the equipment leases or leases that might have equipment leases attached to them (embedded leases) and check across different departments, from administration to IT to human resources. Point to remember – any asset that is clearly leased or any asset which is in use as a part of a bigger setup, should be taken into consideration.
  2. Gather all information related to the leased equipment such as costs, payments, lease obligations & terms, etc. Point to remember – assets that are leased for more than 12 months need to be identified.
  3. Segregate the data and make a list of all the information that will be required for compliance. Point to remember – separate components of the lease that can be assigned a monetary value.
  4. Update all the information in a lease management software that is compliant with FASB 842. The reporting should be quick and easily accessible. Point to remember – if the software is not compliant with the new accounting standards, you will be undertaking undue risks.
  5. Run the report. Based on the report you may want to analyze your buy vs. lease decisions.

The new accounting standards implementation requirements along with the time pressure can be daunting for companies. FASB changes are not just about changing/updating the processes and systems, it’s also about how companies will run their business moving forward.