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FASB’s New Lease Accounting Rules

January 15, 2017

Is your commercial facility considering an LED retrofit financing for a lighting upgrade? Go Beyond Lighting, a leading supplier of Lighting as a Service (LaaS), is working with companies to determine the best LED financial model in light of the latest accounting standards update.

In February 2016, the Financial Accounting Standards Board (FASB) issued updated guidelines related to accounting for leases, aimed at improving financial reporting relating to  lease transactions.

Under the new guidelines, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. The update known as ASU 2016-02 will replace FASB ASC 840, affecting nearly every sector of the economy where manufacturing equipment and real estate leases are involved.

Organizations that lease assets

Leasing is an important activity for many organizations as a means of gaining access to assets, obtaining financing, and reducing an organization’s exposure to the risks of full ownership of the underlying asset.

Going forward, all leases will recognize lease assets and lease liabilities. The changes, under study for over a decade following a recommendation by the U.S. Securities and Exchange Commission, are expected to impact balance sheets at many companies by adding lease-related assets and liabilities, which in turn may affect compliance with contractual agreements and loan covenants.

Forward planning for LED retrofit projects

Go Beyond Lighting highlights the FASB guidelines’ key points for the benefit of our clients and prospective clients who are planning ahead to invest in a LED retrofit upgrade. We emphasize our recommendation that those likely to be affected obtain professional advice from a financial consultant or corporate tax specialist. The new standard is effective for public companies with fiscal years beginning after December 15, 2018. For private companies, it is effective with fiscal years beginning after December 15, 2019.

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