Overview
The Financial Accounting Standards Board’s Accounting Standards Update No. 2016-02, “Leases (Topic 842),” introduces significant changes to how leases are recorded and reported. Effective for fiscal years beginning after December 15, 2019, this update requires nearly all leases to be recorded on the balance sheet, changing the way both lessees and lessors account for lease agreements. Early adoption is permitted.
What This Means for Your Organization
ASU 2016-02 represents a fundamental shift from the previous standards under Topic 840. Lessees must now recognize a right-of-use asset and a corresponding lease liability for virtually all lease arrangements. This change impacts financial reporting, debt covenants, and operational planning. It’s critical that organizations identify, evaluate, and properly classify their lease agreements under the new model.
What We’re Asking Clients to Do
To support this transition, McMahan and Associates is asking clients to review all current and new leases. We’ve developed a lease template to help identify key terms—such as lease term, payment amounts, renewal options, and discount rate assumptions—that influence the accounting treatment under ASU 2016-02.
Available Resources
To help guide your assessment, we’ve provided the following downloadable resources:
These tools are designed to help you collect and organize the information necessary for implementation. During our fieldwork, we’ll also work directly with clients to address specific needs and questions.
Looking Ahead
We’ll continue to monitor developments and provide updates as needed. If further guidance is issued or changes affect implementation, we’ll reach out promptly.
Conclusion
Transitioning to the new lease standard can be complex, but with proactive preparation and the right tools, your organization can remain in compliance while gaining a clearer picture of its lease obligations. If you have questions or need help with implementation, we’re here to support you.
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