In 2022, your organization is required to recognize lease assets and liabilities for most of its leases on its balance sheet.
On February 25, 2016, the U.S. organization that determines how businesses and nonprofit organizations should account for their transactions outlined how your organization should account for properties that you’re leasing or subleasing. The objective is to have businesses and nonprofit organizations present information on their leases in a standardized format to increase transparency and comparability among these organizations.
Businesses and nonprofit organizations that lease properties and prepare their financial statements in accordance with accounting principles generally accepted in the U.S. must recognize lease assets and lease liabilities for all leases, with certain exceptions, on their balance sheet and disclose key information about leasing transactions.
The new accounting rule was effective on January 1, 2019 for public entities with a December 31 year end, and January 1, 2020 for nonpublic entities with a December 31 year end.
All entities may elect to early-adopt. In November 2019, the FASB gave nonpublic entities one more year to implement the lease standard because of the challenges that they encountered in its implementation. In June 2020, because of the pandemic, the FASB has resolved to give an extra year to nonpublic entities that have not adopted the new standard as of June 3rd, 2020 (ASU No. 2020-05). In November 2021, the FASB indicated that there will be no more extra time to adopt the new lease accounting standard.
As a result, all businesses and nonprofit organizations with a December 31 year end should transition to the new lease accounting standard on January 1, 2022.
The FASB developed the lease standard jointly with the International Accounting Standard Board (IASB). It took more than 10 years to develop the lease accounting standard. Businesses that report their transactions in accordance with the International Financial Reporting Standards (IFRS) have similar accounting requirements. IFRS 16 outlined these requirements.