The Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 842 went into effect for private and nonprofit organizations in 2019. When the pandemic hit in early 2020, implementation was delayed as many businesses temporarily closed and could not pay their rent or workforce. Many property owners began offering rent deferrals and abatements while keeping leases in
place.
Lease Accounting Standards Go Into Effect
As the pandemic has eased and businesses are returning to normal levels, reporting under the new requirements for private businesses and nonprofits starts with their 2022 filings.
Operating leases are the primary leases affected by the new requirements. These operating leases include buildings, warehouses, retail space, equipment, and more. Not included are short-term rentals of less than 12 months, intangibles, and service arrangements.
Categorization of Leases for Accounting Purposes
After determining which arrangements are leases, the components should be categorized as follows:
• Lease components: items or activities that provide a good or service.
• Non-lease components: other items or services that may be in the contract.
• Non-components: administrative charges like insurance, property taxes, and other administrative charges.
Next, the liability calculations are determined after analyzing many additional considerations like lease incentives, sales tax on lease payments, variable payments, and more.
Let The Whitlock Co.’s Experience Work for You
These new lease accounting standards are more complex and detailed than in the past. There is no substitute for experience. Call The Whitlock Co. today or request a consultation and we can put your private business on an effective implementation plan.
