New Lease Accounting Standards – Are You Prepared?

As early as June 2011, the newly proposed lease accounting standards distributed back in August of 2010 may be finalized. These new standards proposed by the Financial Account Standards Board (FASB) would fundamentally change how companies account for real estate and equipment leasing transactions.

And according to a recent Deloitte survey, only 7% of business executives believe they are prepared for the switch. Are you one of them?

“This change will impact every company that has a lease, not just real estate entities,” says Keith Middleton, partner at Fahrenheit Finance. “Management should start – today – understanding the proposed rules, the potential impact to their financial statements and covenants, as well as tracking down every lease agreement and building a database.”

One major change businesses will have to face over financial reporting is that all operating leases would be eliminated, requiring them to be capitalized on the company’s balance sheet. For lessees, rent payment expense reporting will be replaced with interest and amortization expense reporting.

“Management teams that get out in front of the impact and that are proactive with their lenders and auditors will be better served,” says Middleton. ”Waiting until the last minute may result in delays in financial reporting and covenant issues.  We are already in discussion with several clients about helping them through the process.”

To see if you’re company is ready to cope with these new standards, click here to view a list of significant changes that will affect your business.