A New Standard for Lease Accounting

September 17, 2018

By Jason Gutman and Jessica Hess

On February 25, 2016, the FASB issued ASC 842 Leases – a new standard seeking to address concerns of financial statement users and provide a clearer picture of companies’ leasing activities.

For public companies, ASC 842 will be effective for fiscal years beginning after December 15, 2018; for all other entities, including most non-profits, ASC 842 is effective for fiscal years beginning after December 15, 2019.

What are the Major Impacts?

ASC 842 establishes a new concept in lease accounting known as the “right of use” (“ROU”) asset. An ROU asset results from a contract which conveys the right to control an “identified asset” for a period of time, in exchange for consideration. In the healthcare industry this new standard will affect leases for the use of:

  • Inpatient and outpatient treatment facilities
  • Medical and diagnostic equipment
  • Offsite document storage
  • Software solutions for case management, billing, and compliance

Lessees will classify their leases as either operating or finance; each classification has its own unique accounting treatment. All leases are initially recorded as liabilities equal to the present value of the lease payments, along with a corresponding ROU asset equal to the lease liability. The level of financial statement disclosure around leasing activities also increases under the new standard.

What are the Steps to Implementation?

  • Gather and catalog your current inventory of leases, store lease data in a centralized repository
  • Design and implement a new lease accounting process to manage your organization’s lease data
  • Select a software solution that will support your organization’s adoption of the new lease accounting standards, and ongoing lease monitoring and maintenance
  • Transition to Business as Usual (BAU), fully train staff on new software solution, design and implement internal controls

When to Start?

We expect implementing ASC 842 will be a significant challenge for most organizations. Now is the time to gather data and identify solutions in order to achieve compliance by the effective date of the standard. Visit to see the effective solutions our experts can offer you.


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