In the News: Private Companies Have Another Year To Deal With New Lease Accounting Standards, And They'll Probably Need It

Another complicating factor is that the concept of materiality — whether a lease is big enough to be considered a material liability — comes into play when dealing with operating leases.

“Now that operating leases must be captured on financial statements under the new lease standard, many CPAs are wondering about materiality,” LeaseCrunch CEO Ane Ohm told CPA Practice Advisor. “For the international standard, IFRS 16, the materiality threshold is set at $5K, meaning that leases under that amount do not need to be accounted for on the books."

However, FASB didn't set a similar threshold for materiality under ASC 842, so many organizations are wondering what operating leases are material enough to be added onto their balance sheets, Ohm said.

Yet another complication is that while the standards apply to leases, not all leases are called leases. If an agreement conveys the right to control the use of a specified asset in exchange for payment, it may be a lease — even if it is just part of a broader contract for other goods or services.

Ohm cites healthcare as a major example of an industry that uses a lot of leases "embedded" in service contracts.

"If you receive a physical asset as part of a service contract, such medical equipment, that counts as a lease, even though it isn't called a lease, and it's subject to the new standards," Ohm said.

Read the full article from Bisnow, here.