It seems like we have been talking about the new revenue recognition standard and lease standard for almost a decade now. As of last month, the Financial Accounting Standards Board (FASB) has extended the implementation period for these new standards yet again.
For the leasing standard, private companies may now delay to annual reporting periods beginning after December 15, 2021. While this may seem to be in the distant future, it will be here before you know it. As a reminder, currently US GAAP classifies leases as either capital or operating. Capital leases are recorded on the balance sheet while the operating leases are not. Under the new standard, a company will have operating and finance leases. All leases will be presented on the balance sheet with the exception of short-term leases (less than 12 months). On the income statement, the interest and amortization pieces will be recorded separately for a finance lease. On the other hand, for an operating lease, both will be recorded to a single line item called lease expense. These changes from the lease standard will have a significant impact to your financial statements and possibly covenants, especially for restaurants. We would encourage you to begin modeling what effects the standard will have on your business and to begin conversations with your bankers now to modify any bank agreements containing financial covenants that are required to be met.
For the revenue recognition standard, private companies may now delay to annual reporting periods beginning after December 15, 2019. This is essentially a one-year deferral but is a moot point for anyone that has already completed their 2019 financial statements and implemented the standard. If for any reason finalizing your 2019 financial statements have been delayed, this would be an option for you for forego the standard another year. Talk it over with your accountants. It may just be better to get it done and over with now since it is still fresh in everyone’s mind.
If you are unsure of how to address these new accounting standards and what they mean for your business, please reach out to a Henry+Horne restaurant advisor. We would be glad to help you ensure your business is compliant with the upcoming standards.
Courtnee A. Greshner, CPA