The Financial Accounting Standards Board and International Accounting Standards Board have issued new lease accounting standards that will require virtually all leases to be recognized on the balance sheet. This will affect any company that uses GAAP or IFRS financial reporting, and will take effect for public companies in 2019 and private companies in 2020. It represents a significant change from the current standards that will require companies to overhaul their accounting systems and processes to comply with the new principles-based methodology.

1. NEW LEASE ACCOUNTING
ASC Topic 842
Presented by:
Jeffrey W. Shell
EVP, Corporate Capital Markets

2. CCM LEASE ACCOUNTING CHANGES PROPRIETARY & CONFIDENTIAL
ASC Topic 842
Who is doing it?
 Financial Accounting Standards Board (FASB)
 International Accounting Standards Board (IASB)
What are they doing?
 Main concept: Virtually all leases go on balance sheet
 Lease accounting for financial reporting (Note: will not effect tax or cash)
Who is affected?
 Anyone who uses GAAP or IFRS
 All public companies
 Most large private companies

3. CCM LEASE ACCOUNTING CHANGES PROPRIETARY & CONFIDENTIAL
ASC Topic 842
Why are they doing it?
 Financial statements don’t reflect the underlying
economics of leases
 Increase balance sheet transparency and
comparability
 Move from rules-based to principles-based
methodology
X Convergence
When does Topic 842 take effect?
 2019 for Public Companies
 2020 for Private Companies

4. CCM LEASE ACCOUNTING CHANGES PROPRIETARY & CONFIDENTIAL
ASC Topic 842
Balance Sheet Income Statement Cash Flow Statement
Finance Lease Asset – ROU
Liability –
Lease
Amortization Expense
Interest Expense
Cash Paid for Principal + Interest
Operating Lease Asset – ROU
Liability –
Lease
Straight-Lined
Expense
Cash Paid for Lease Payments
Once again, 2 types of leases

5. CCM LEASE ACCOUNTING CHANGES PROPRIETARY & CONFIDENTIAL
ASC Topic 842
More departments will be involved in real estate decisions:
Increased decision-making complexity within companies
Decisions will be much more like an internal approval
process for a capital asset

6. CCM LEASE ACCOUNTING CHANGES PROPRIETARY & CONFIDENTIAL
ASC Topic 842
Q. Is this a big Deal?
A. Yes, companies will likely need to:
• Overhaul legacy accounting systems, processes, procedures
and controls.
• Install new systems to integrate and automate into
enterprise systems.
• Incur cost for systems upgrades, and education/implementation of new controls.
• Establish policies and practices for making decisions concerning renewals and
other options in leases.
• Size the impact on a company’s financial statements.
• Restate the effect of changes on financial statements.
• Manage impact on operating results, financial ratios,
and debt covenants.

7. CCM LEASE ACCOUNTING CHANGES PROPRIETARY & CONFIDENTIAL
ASC Topic 842
How will this affect deals?
• A bias toward shorter leases off-set by higher rental costs.
• A bias towards ownership, but priority remains access to capital, cost
of capital, and needs of business.
• More options and analysis.
• More and less reasons to do sale/leasebacks.
• New priorities – on-balance sheet lease financing.
• Old structures rise – synthetic leases.
• Smart move: rationalize and right-size portfolios.