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As it gets closer to 2022, now is the time for contractors to review FASB ASU 2016‐02, Leases (ASC 842). The primary focus should be on the impact the lease standard will have on the company, specifically bank and surety considerations, as well as specific attributes of the standard such as embedded leases, related party leases, and consolidation (when there is a variable interest entity (VIE)) and how to apply the lease accounting standard to these situations.

ASC 842 is set to replace the legacy rules under ASC Topic 840.  ASC 842 is now effective for private companies and nonprofit organizations’ annual reporting periods beginning after December 15, 2021.  This change will mean that under the new standard, companies will have to capitalize all leases with terms greater than 12 months, creating a new asset and liability on the balance sheet. In addition, all leases will be classified as operating or financing leases (“capital lease”). A key element of this standard is that it does not grandfather existing leases.

AICPA’s whitepaper provides further insight on the new FASB ASU 2016-02 leases including the following topics:

  • Financing vs Operating
  • Banking and Surety Considerations
  • Understanding Related Party Leases under ASC 842
  • Identifying Contracts with Embedded Leases
  • Adoption Considerations
  • Variable Interest Entity Considerations
  • Implementing Available Practical Expedients

To read the full whitepaper, download it here.

Scott Contreras, CPA

Assurance Partner

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The construction industry is facing multiple challenges from a variety of sources. This means businesses will need to continually review and optimize various cost centers to maintain a reasonable level of profitability. If you have questions about the information outlined above or need assistance with a construction lease accounting issue, Calvetti Ferguson can help.

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