Using practical expedients, determining the lease term, assessing your discount rate, lease renewals and previously capitalized balances
MILWAUKEE, December 19, 2018 – John Hepp, retired Grant Thornton partner, former FASB project manager and current accounting faculty member at University of Illinois at Urbana-Champaign, discusses several nuances of the new lease accounting standard, from practical expedients (“the spoonful of sugar to help the medicine go down”) to discount rates and much more, in a new LeaseCrunch® blog posting. Topics covered:
Using practical expedients
According to a LeaseCrunch® survey, 60% of CPA firms find that most of their clients are electing the practical expedient package, yet 24% say problems have arisen related to which practical expedients should be applied. John shares that the practical expedients—though not perfect—certainly can reduce the amount of work needed in transitioning to the new standard.
Determining the lease term
Before determining and applying your interest rate, you must identify the lease term. FASB will allow, for transition purposes, to use a rate for either the original term of the lease OR the remaining term, as long as you are consistent throughout.
Assessing your discount rate
Once you determine whether you will go with the original lease term or the remaining term, you must identify your discount rate, and again, there are two options.
John says that renewal terms should only be included if you can demonstrate that there is an economic reason you’re compelled to stay, such as significant leasehold improvements or a termination penalty. Just because you intend to renew or cancel does not necessarily mean that you would include a renewal term.
Previously capitalized balances
John explains that “under the new model, there’s really no such thing as prepaid rent.” As for how to handle transitions for existing prepaid rent on the books, he offers recommendations.
To read the entire John Hepp blog, go to: https://www.leasecrunch.com/blog/ask-the-expert-john-hepp-discusses-the-new-lease-standard
LeaseCrunch® is the only lease accounting software made by former CPA firm auditors for CPA firm auditors, with a development team made up of CPAs, former Big 4 public accounting auditors, accounting academics and a former FASB staff member.
For more information go to: www.LeaseCrunch.com
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John Steven Vita Communications