ASC 842 New Lease Standard
ASC 842 is set to replace the legacy rules under ASC Topic 840. ASC 842 is now effective for private companies’ and nonprofit organizations’ annual reporting periods beginning after December 15, 2021. This change will mean that under the new standard, companies will have to capitalize all leases with terms greater than 12 months, creating a new asset and liability on the balance sheet. In addition, all leases will be classified as operating or financing leases (“capital lease”). A key element of this standard is that it does not grandfather existing leases.
For contractors, the focus should be on the impact the lease standard will have on the company, specifically bank and surety considerations, as well as specific attributes of the standard such as embedded leases, related party leases, and consolidation (when there is a variable interest entity (VIE)) and how to apply the lease accounting standard to these situations. This whitepaper will provide further insight into some of the key areas that you should be aware of when implementing the new standard.