2. CCM LEASE ACCOUNTING CHANGES PROPRIETARY & CONFIDENTIAL
ASC Topic 842
Who is doing it?
Financial Accounting Standards Board (FASB)
International Accounting Standards Board (IASB)
What are they doing?
Main concept: Virtually all leases go on balance sheet
Lease accounting for financial reporting (Note: will not effect tax or cash)
Who is affected?
Anyone who uses GAAP or IFRS
All public companies
Most large private companies
3. CCM LEASE ACCOUNTING CHANGES PROPRIETARY & CONFIDENTIAL
ASC Topic 842
Why are they doing it?
Financial statements don’t reflect the underlying
economics of leases
Increase balance sheet transparency and
comparability
Move from rules-based to principles-based
methodology
X Convergence
When does Topic 842 take effect?
2019 for Public Companies
2020 for Private Companies
4. CCM LEASE ACCOUNTING CHANGES PROPRIETARY & CONFIDENTIAL
ASC Topic 842
Balance Sheet Income Statement Cash Flow Statement
Finance Lease Asset – ROU
Liability –
Lease
Amortization Expense
Interest Expense
Cash Paid for Principal + Interest
Operating Lease Asset – ROU
Liability –
Lease
Straight-Lined
Expense
Cash Paid for Lease Payments
Once again, 2 types of leases
5. CCM LEASE ACCOUNTING CHANGES PROPRIETARY & CONFIDENTIAL
ASC Topic 842
More departments will be involved in real estate decisions:
Increased decision-making complexity within companies
Decisions will be much more like an internal approval
process for a capital asset
6. CCM LEASE ACCOUNTING CHANGES PROPRIETARY & CONFIDENTIAL
ASC Topic 842
Q. Is this a big Deal?
A. Yes, companies will likely need to:
• Overhaul legacy accounting systems, processes, procedures
and controls.
• Install new systems to integrate and automate into
enterprise systems.
• Incur cost for systems upgrades, and education/implementation of new controls.
• Establish policies and practices for making decisions concerning renewals and
other options in leases.
• Size the impact on a company’s financial statements.
• Restate the effect of changes on financial statements.
• Manage impact on operating results, financial ratios,
and debt covenants.
7. CCM LEASE ACCOUNTING CHANGES PROPRIETARY & CONFIDENTIAL
ASC Topic 842
How will this affect deals?
• A bias toward shorter leases off-set by higher rental costs.
• A bias towards ownership, but priority remains access to capital, cost
of capital, and needs of business.
• More options and analysis.
• More and less reasons to do sale/leasebacks.
• New priorities – on-balance sheet lease financing.
• Old structures rise – synthetic leases.
• Smart move: rationalize and right-size portfolios.