In 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) which significantly affects financial statement accounting for leases. The key difference between existing lease guidance and the new guidance under Topic 842 is the requirement for lessees to recognize lease contracts with lease terms greater than 12 months, including operating leases, on the statement of financial position.

Topic 842 requires lessees to recognize on the statement of financial position both:

• a right-of-use asset, representing the lessee’s right to use the leased asset over the term of the lease; and,
• a lease liability representing the lessee’s obligation to make lease payments over the term of the lease.

The new lease standard also updated the definition of a lease defining it as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.

Topic 842 retains a dual model for classifying leases, but instead of operating and capital lease classifications, they are now classified as either operating or finance. The distinction between these two classifications under the new standard will determine the treatment and recognition in the statements of activities and cash flows.  

While the implementation date of the new lease standard for nonprofits has been delayed to fiscal years beginning after December 15, 2021, organizations should not postpone their implementation strategy.  Organizations will need to reassess their contracts to determine whether a contract is or contains a lease. The implementation date for nonprofits that have issued or are a conduit bond obligor for securities that are traded, listed or quoted on an exchange for an over-the-counter-market is for fiscal years beginning after December 15, 2019.

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To assist your nonprofit organization in planning for and implementing the new accounting standard for leases, CapinCrouse has developed a timely and helpful Lease Toolkit. This toolkit will help with understanding the new standard and generating the lease calculations and disclosures needed.