New lease accounting standards approved by the U.S. Financial Accounting Standards Board (FASB) went into effect on December 15, 2018, for public companies. For private companies, the standards take effect on December 15, 2019. What should your private construction company be doing now to prepare for the transition? You’ll want to look at your business processes including changes in your financial statements, collect data, and make a plan. The following are areas to address that will help make the lease accounting changes go smoothly for your construction business:
1. Inventory all equipment lease and rental contracts. Knowing the amounts and nature of contractual obligations and terms of your leases will enable you to understand your company’s FASB lease accounting and tracking needs.
2. Identify IT/software requirements. To determine if the technology in place will meet the new lease accounting standards, ask your accounting software vendor how they plan to support the changes.
3. Review your debt covenants. Although the lease accounting changes will have limited effects on debt covenants, fully discuss any potential implications with your bank or creditors.
4. Seek out industry expertise and counsel. In addition to getting lease accounting expertise, you’ll want to consult with your equipment finance provider. Providers have hands-on experience, informational resources, and advice on industry best practices to help you assess the possible impact of the changes on your current and future leasing needs.
5. Enact a plan. With the information you’ve gathered, you can start planning the budget and resources necessary for updates and systems changes to support the new rules. You may want to think about creating a transition timeline and forming a team consisting of key members of your staff to guide your transition preparations.
The information in this document is a summary only and does not constitute financial advice. Readers should obtain their own independent accounting advice that takes into account all relevant aspects of a particular lessor’s or lessee’s business and products.
This information is brought to you by John Deere Financial and the Equipment Leasing and Finance Association.
Time’s running out, so start planning now. The Equipment Finance Advantage is a great 24/7 online resource to help you take a deeper dive into the new lease accounting rules.