Attention privately held businesses!
Last Call to Implement New Lease Accounting Standard
As we settle into the new year 2023, a last call to implement ASC 842 is in order. ASC Topic 842 changes the accounting for leases and the way leases are presented in externally reported financial statements. Whether a business is a lessee or a lessor, it might not be too late to plan for the impact. Abeles & Hoffman can help!
5 Points to Remember:
- The new standard is effective for privately held companies’ fiscal years that begin after December 15, 2021.
- Almost every lease will require lessees to record a right-of-use asset and a lease liability. That means that if a business presents financial statements, the balance sheet will be required to look different than previous years.
- In addition to changes in the financial statements, the disclosures (or notes to the financial statements) have significant new requirements.
- Changes in the reporting of leases could have a compliance impact on a business’ loan covenants. For example, tangible net worth could decrease as a result of the new standard, impacting minimum tangible net worth covenant requirements. Other ratios, such as Return on Assets and Quick Ratio, will also be impacted.
- The transition to the new lease standard will take a great deal of time and resources, but partnering with Abeles & Hoffman will help ease the stress and avoid any unwelcome surprises.
What you can do
- Determine lease population – There is a lot to think about here. Contact Abeles & Hoffman and we can help you to determine what is considered a lease under the new standard.
- Contact any bank with whom financial covenants are held, and make certain the current terms are well understood and available to be shared with accountants.
- Enlist Abeles & Hoffman to help with the lease accounting change and to acquire a more complete list of considerations