Financial Accounting Standards Board (FASB) Decides to Delay new Lease Standards
Tuesday, November 19, 2019
FASB decided to defer the mandatory effective date for accounting for lease obligations for entities that are not (1) Public Business Entities (2) Not-for-Profit Conduit Bond Obligors, or (3) Employee Benefit Plans that file or furnish financial statements with the SEC. The change will permit title companies that are not public business entities to exclude liabilities associated with lease obligations from the calculation of their current liabilities for purposes of determining working capital when reporting to the Department of Insurance. The deferral is important because California companies report to the Department of Insurance using GAAP accounting and the change generally treats operating leases as short term liabilities, thus artificially lowering reported working capital.
The deferral is for an additional year, meaning the lease standards will be effective beginning after December 15, 2020 (January 1, 2021, for calendar-year-end companies), and interim periods within fiscal years beginning after December 15, 2021 (January 1, 2022 for calendar-year-end companies). Early adoption will continue to be allowed.
The Board concluded that it received sufficient information and analysis to make an informed decision on the perceived costs of the changes and that the expected benefits would justify the expected costs of the amendments in the Accounting Standards Update. The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.
At the request of the CLTA, the American Land Title Association had encouraged the FASB to delay these standards as they could have a negative impact on title companies without creating any demonstrable consumer protections or benefits.