The deadline to implement major changes in the way leases are treated for accounting purposes may appear to be well in the future: late 2019 for publicly traded companies, and January 1, 2020 for privately held companies and non-profits. But accounting professionals are discovering that the work necessary to make the transition is significantly more complicated than anticipated.
The new standards, which apply to all companies (public, private and non-profits) that issue a financial statement in accordance with Generally Accepted Accounting Principles (GAAP) and have leasing transactions, will require leased assets to be recognized on the organization’s balance sheet.
This may have a significant impact on bank loans, as adding operating leases – which appear as debt – to the balance sheet may affect loan covenants by changing the amount of debt you are carrying. As a result, your business could slide into default on your loans without realizing it. The solution is likely to be a renegotiation of loan covenant terms, or a waiver or change in your lease agreement. Read more here.