Lease Tool 2.0 - Update to Implement ASU No. 2016-02 (Topic 842)

On February 25, 2016, the FASB finalized a new lease accounting standard. The new standard will have far-reaching implications for companies that have leases longer than 12 months. The new standard requires lessees to recognize all leases, including operating leases with both an asset and liability on the balance sheet.

Major Changes in the New Standard

• All leases (longer than 12 months) are now capitalized on the balance sheet
• May significantly increase reported assets and liabilities for some lessees
• Requires lessees to compute right-of-use (ROU) asset and corresponding lease liability (see below)
• New and expanded Financial Statement disclosures required (see below)
• Modified retrospective transition required (see below)
• Required compliance for public companies on annual and interim periods of fiscal years beginning after December 16, 2018
• Required compliance for all other entities on annual periods of fiscal years beginning after December 16, 2019 and interim periods beginning after December 16, 2020
• Early adoption is permitted before the applicable deadline

Lease Accounting Standard (ASU No. 2016-02 Leases (Topic 842)) has revised the previous Topic 840, released in August, 2010.

Key Impacts on Financial Statements

At implementation, companies will need to calculate and record a right-of-use asset and corresponding liability. These amounts are then adjusted over the life of the lease as payments are made. In addition, certain circumstances, such as a change in terms or assumed life, will require recalculation.

Expanded Disclosure Requirements

The new rule changes the required disclosures. Key changes are as follows:

• Qualitative disclosures: such as information about the leases terms, payments, options, etc.
• Quantitive disclosures: such as lease cost, ammortization of balance sheet items, weighted average remaining lease term, weighted average discount rate, and a maturity analysis of lease liablities
• Significant judgements and assumption: such as discount rate for the leases, impairment (if any) and changing lease terms including extension options, etc.

Retrospective Transition to Financial Statements after Implementation

The new lease standard requires the "modified retrospective implementation approach," which means that companies will need to compute and present the comparable right-of-use asset, corresponding lease liability, and income statement impacts for prior periods. This is required for any prior periods presented in post-implementation financial statements.

For example, public companies with a calendar year-end, who are required to comply in fiscal year 2019, would also be required to compute right-of-use assets and lease liabilities for the 2018 balance sheet, and income statements for 2017 and 2018 calculated on a comparable basis.

How Can We Help You Prepare?

Our existing Lease Tool is currently being updated to comply with Topic 842 and is expected to be released shortly. The tool will allow the user to calculate the right-of-use asset and corresponding lease liability amounts, for a single lease, over the term of the lease. It will also calculate the lease disclosure amounts under both the current and new rules.

Similar to many of our tools, the Lease Tool is Excel-based, and is purchased for online download for a one time payment of $1,499. The license is per lessee/company, but may be copied multiple times to support any number of leases for that lessee. Support is as-needed and provided for an hourly charge. This Tool is a cost effective way to comply with the new guidance.

We realize that some of our customers would prefer to have us handle the computation. Starting at $2,500 setup charge for up to three leases, and $250 per added lease, we will compute the amounts and provide you with the output and a summarized report. Subsequent reports (quarterly or annually) are $1,000 for up to three leases and $100 per lease above three per report. This service includes summarization, and disclosures.

Please see our FAQ for licensing information and Company policies.

Ordering Information

The Lease Management Tool, Version 2.0 will be available for $1,499 (US Dollars) for download.

We offer a variety of Excel-based tools to assist companies in complying with accounting requirements. This Tool take assumptions as inputs and with the push of a button, produces amortization based on those assumptions using industry-standard methods. The formulas are protected from tampering to prevent accidental deletion or modification.

We also provide consulting services to assist with Lease accounting. Please contact us at consulting@procognis.com for more details.

Feel free to contact us at sales@procognis.com if you have any questions about this Tool.