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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 mazarsusa.com/hc to see the effective solutions our experts can offer you.

 


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