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Equipment finance companies offer flexible-financing solutions—especially leases—that can be tailored to specific accounting, tax or cash flow needs. They vary from fair-market value (FMV) lease transactions and capped FMV leases to full payout loans. (ELFA)

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New Lease Accounting Rules

A new lease accounting standard was released by the U.S. Financial Accounting Standards Board (FASB) on February 25, 2016. These changes will become effective starting after December 15, 2018, for public companies and after December 15, 2019, for private companies.

What should your company be doing now?

Top 5 Tips for Lessees to Prepare for New Lease Accounting Rules

  1. Inventory all equipment lease and rental contracts. Knowing the amounts and nature of contractual obligations and terms of your leases will enable you to understand your company’s accounting and tracking needs.
  2. Identify IT/software requirements. To determine if the technology in place will meet the new standards, ask your accounting software vendor how they plan to support the changes.
  3. Review your debt covenants. Although the lease accounting changes will have limited effect on debt covenants, discuss fully any potential implications with your bank or creditors.
  4. Seek out industry expertise and counsel. In addition to getting accounting expertise, you’ll want to consult with your equipment finance provider. Providers have hands-on experience, informational resources and advice on industry best practices to help you assess the possible impact of the changes on your current and future leasing needs.
  5. Enact a plan. With the information you’ve gathered, you can start planning the budget and resources necessary for updates and systems changes to support the new rules. You may want to think about creating a transition timeline and forming a transition team consisting of key members of your staff to guide your transition preparations.

This information is brought to you by OneWorld Business Finance and the Equipment Leasing and Finance Association. The information in this post is a summary only and does not constitute financial advice. Readers should obtain their own independent accounting advice that takes into account all relevant aspects of a particular lessor’s or lessee’s business and products.

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