On Wednesday, July 17, 2019, following a unanimous vote, the Financial Accounting Standards Board (FASB) tentatively decided to defer the effective date of Topic 842 (Leases) by one year for most nonprofit organizations. Upon final approval, for organizations to which the deferral applies, the effective date of the new lease standard will be for fiscal years beginning after December 15, 2020 (calendar years ending December 31, 2021 and non-calendar years ending in 2022). The deferral, if approved, will help ameliorate the burden placed on nonprofit organizations caused by the confluence of several changes in the financial reporting rules issued by the FASB in recent years.
Topic 842 represents a significant overhaul of the accounting treatment for leases. The most significant change (assuming certain criteria are met) is that most leases will now be capitalized on the organization’s balance sheet as a “right-of-use” asset with a corresponding “lease liability” recognized (each recorded at the present value of the lease payments). The right-of-use asset will be written off over the term of the lease (much like depreciation expense on owned assets), and the lease liability will be reduced over time as payments are made under the lease (much like amortization of a traditional bank loan). Even with the proposed deferral in the effective date, organizations would be wise to begin considering the potential impact of Topic 842 on their external financial reporting process.
BMWL will provide more information about the new lease standard as the effective date draws nearer.
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