ADVISORY NOTICE: LEASE ACCOUNTING CHANGES HAVE BEEN FINALIZED! What should you be doing to ensure compliance?

June 2, 2016

internet webAs a strategy and consulting professional in the legal and compliance industry for over eight years, I know how overwhelming it can be to stay on top of ever-changing regulations, but also how critical it is for your business that you do so.

In my article of September 18th, 2015 (Big Changes to Lease Accounting could have a Big Impact on your Business), I noted that lease reporting changes were imminent. New rules established by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) were on the horizon and companies would be paying the prices for non-compliance. The article details the reasons certain lease transactions are accounted for as “off-balance sheet.” As lease accounting processes were being researched, more than 20 different companies provided their feedback. Although there was differing approaches to lease classification, there was agreement among Boards that companies should recognize the need for changes to the lease accounting rules for both lessees and lessors.

Well, the time has come. After ten years of sustained efforts on the part of the FASB and IASB, both boards have now finalized their respective lease accounting standards in February 2016 – Leases (ASC 842).

All companies will have to consider changes to their compliance, reporting, tax, and accounting functions, among others.


Currently, the US Generally Accepted Accounting Principles (GAAP) – codified by the Accounting Standards Codification (ASC 840) – lays emphasis on whether the lease substantially transfers all of the risks and rewards of ownership. The new Guidance (ASC 842) introduces a right-of-use model, which marks a shift from the risks and rewards approach to a control-based one.

It will be a condition for companies to record and capture all their leases appropriately on their financial statements.


The standard is effective for annual periods for:

  • Public companies – beginning after December 15, 2018 (calendar periods beginning after January 1st, 2019)
  • All other companies – beginning after December 15th, 2019 (calendar periods beginning after January 1st, 2020) and interim periods after December 15th, 2020
  • Early adoption would be permitted for all companies


It is essential to begin planning the execution of the following recommended steps for your business:

  1. Documenting a thorough inventory of leases
  2. Collating and extracting key terms and provisions from each lease
  3. Coordinating with subject matter experts who can help identify the impact of these changes on your business and make appropriate recommendations
  4. Identifying requisite system and process changes and determining how to implement them

Learn more about how Thomson Reuters Legal Managed Services specializes in providing the people and processes to help your internal teams achieve their compliance goals. Contact Charlie Serocold for more information on lease accounting changes.