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Who’s Ready for ASC 842?

What companies should be doing differently to prepare for the new lease-accounting standards.

By Michael Keeler | Updated on August 01, 2018

In 2016, the Financial Accounting Standards Board (FASB) released a new set of lease-accounting standards that require companies to change how they report on their operating leases. Instead of mentioning leases only in the footnotes of their filings, they will now need to report a right-of-use asset and a lease liability on the balance sheet for each operating lease. This change was a result of a U.S. Securities and Exchange Commission (SEC) initiative to close accounting loopholes and increase transparency into the financial position of companies.

The new lease-accounting standards are known as ASC 842, and public companies are required to apply them for annual reporting periods after December 15, 2018. For public companies with a fiscal-year start on the first of the year, that means their deadline will be January 1, 2019. Private companies will be required to apply the standards for annual periods after December 15, 2019—one year later.

The SEC also now requires companies to file Staff Accounting Bulletin (SAB) 74 disclosures describing the expected impact of any new accounting standard. With regard to ASC 842, the SAB 74 disclosures provide insight into companies’ preparedness for implementing the new lease-accounting standards. We recently reviewed quarterly and annual SAB 74 disclosures issued over the past year by 100 companies with high operating-lease obligations, with the goal of gauging their progress and better understanding keys to success in implementing the ASC 842 standard.

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