Jen: This is PKF Texas the Entrepreneurs Playbook. I’m Jen Lemanski, and I am back again with Danielle Supkis Cheek, a director and one of the faces of our PKF Texas Consulting team. Danielle, welcome back the Playbook.
Danielle: Always happy to be here.
Jen: So, we’ve had a few other directors in here talking about lease accounting, and I know the standards have changed a little bit since the last time we had—I think it was Chris Hatten was here. Can you give us a little bit of an overview about what’s happened with the delayed lease accounting standards?
Danielle: Yeah sure. The AICPA’s Technical Issues Committee actually wrote an unsolicited letter to the FASB requesting an extension related to… it was really mainly tied to… that we have a lot going on with the Revenue Recognition implementation, I think we talked about the past. And then adding it to the leases, the leases can change your balance sheet a lot, and I think we’ve had a lot of people talking about the implications to your balance sheet of the actual standard, that it can impact your covenants or various ratio analysis.
So, we wrote the letter—I’m the current chair; I wasn’t the chair when we wrote the letter—and we requested the extension. FASB actually took that as a, “We should consider a delayed adoption date, a date for two years for most standards for private companies.” So, you’re going to start seeing, where public companies go and then two years later private companies are going to go. So, they’re going to get a little bit more time to learn those lessons from public companies, to start having software vendors, to having the time to implement various softwares—there’s a ton of lease accounting software out there.
Jen: Oh good.
Danielle: We’ve subscribed to a service to allow our clients to have access to a lease accounting software. So, what we’re recommending to our clients is don’t just take this as a delay for the sake of delay and delay starting.
Jen: Go ahead and start it now.
Danielle: Start now, use the time to do what you would ideally like to do if you didn’t also have to do revenue at the same time and start anticipating what those impacts are going to be on your balance sheet, start doing the calculations, start looking for the one of the big tricky areas is embedded leases. So, if you have a service contract that has a hardware component that comes with it, you technically have an embedded lease—you have to start finding those.
Danielle: And then just start the process, identify the population leases, contact us to get into our software, start getting through the actual work to find out what these are going to do. There’s a couple of other private company alternatives, and honestly, I think more are going to be coming. We’ve provided a list to the FASB of certain areas that we think are a little too complex, that don’t give the users any meaningful information. They’ve been pretty receptive, so hopefully in the next year or so we’ll see some more simplifications coming out that makes it a little bit easier. But the big takeaway is start now. Don’t just wait there for the next year.
Jen: Just because it is delayed doesn’t mean you should delay your actions, correct?
Danielle: Right, correct.
Jen: Perfect. Well, we’ll get you back as those standards start coming out a little bit more.
Danielle: Sounds great.
Jen: For more information about this, visit www.pkftexas.com. This has been another Thought Leader production brought to you by PKF Texas the Entrepreneurs Playbook. Tune in next week for another chapter.