CPA, CGMA, Partner - Not-for-Profit & Education Industry Leader
View full biography
Reminder: New lease accounting standard (Topic 842) is effective for “Public” Not-for-Profits
The new lease accounting standard (Topic 842, “Leases”) is effective for fiscal years beginning after Dec. 15, 2019 (calendar year 2020), for Public Not-for-Profits (as defined below) that elected the optional one-year deferral thereof. Such entities should now be implementing Topic 842, and also taking into account any added complications related to COVID-19.
Background
The Financial Accounting Standards Board’s (FASB’s) Accounting Standards Update 2020-05 (ASU 2020-05, issued in June 2020) provided a limited deferral of the effective date of Topic 842 (which supersedes lease accounting under Topic 840) for certain reporting entities. That group included not-for-profit entities that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or over-the-counter market – or “Public NFPs” – that had not yet issued financial statements or made financial statements available for issuance as of June 3, 2020 (or have not yet issued 2019 financial statements). For Public NFPs that elected the limited deferral, Topic 842 is effective for fiscal years beginning after Dec. 15, 2019 (calendar year 2020).
The most significant change under Topic 842 is the requirement for lessees to recognize right-of-use assets and corresponding lease liabilities for leases classified as operating. This is significant because prior to Topic 842, lessees generally accounted for their operating lease liabilities and associated assets off-balance sheet.
In addition, there are challenges with respect to transitioning to and implementing Topic 842, such as selecting practical expedients, including those related to transition, the lessee’s determination of its incremental borrowing rate (or rate implicit in the lease), collectability considerations, variable lease payments, build-to-suit arrangements, and donated rents.
On top of the complexity of transitioning to Topic 842, not-for-profits will also need to consider whether they have received (or have given) lease concessions in response to the effects of the COVID-19 pandemic. There are unique aspects to accounting for COVID-19 concessions. Further, the pandemic may have constrained an organization’s economic performance, thereby placing pressure on covenant compliance. The recognition of lease liabilities in connection with adopting Topic 842 could compound such pressure. While things will hopefully normalize post-pandemic, those lease liabilities will remain.
Related Services
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
Related Insights
-
InsightSVOG closeout process: What companies should do nowPaul Ballasy, Rebecca LymanWith deadlines for audit requirements fast approaching, it is important to gather and analyze your company’s supporting documentation for SVOG spending and make sure you have completed all requirements of the closeout process. Learn more.
-
InsightDemonstrating relevance: a top priority for not-for-profits in 2023John AlfonsoIn 2023, not-for-profit organizations need to be able to demonstrate relevance by measuring and reporting on impact. Learn more.
-
InsightNew York not-for-profits: Amendments bring new flexibility for board operationsLori Rothe Yokobosky, Jola Tuck, Chaim FridmanCatch up on recent changes related to voting methods, quorum requirements, and replacement board member term durations.
-
Press ReleaseCohnReznick’s Yokobosky named to NJBIZ 2022 Best 50 Women in Business ListCohnReznick Partner and Exempt Organizations Tax Services Leader Yokobosky was named by NJBIZ as one of its Best 50 Women in Business for 2022.
-
InsightTaxation for higher ed: Are RA stipends and housing taxable?Laura Kielczewski, Sima WolfsonStipends for resident advisors are a great way for colleges and universities to encourage participation of their upperclass students in the welfare of undergraduates. But it is important to keep the tax implications of such payments in mind.