Pub. 7 2017 Issue 1

16 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com I n February 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) Topic 842. It deals with leases and therefore supersedes Topic 842. The update has been in the works since 2006, when two or- ganizations began a joint project to create it: the FASB and the International Accounting Standards Board (IASB). The new guidelines that are contained in ASU Topic 842 can be adopted immediately, or they can be adopted, depending on the type of organization or plan that is involved, as follows: Type of Organization or Plan Implementation timeline Public business entities, some not-for-profit entities, and some employee benefit plans Fiscal years that start after December 15, 2018, including interim periods in those years. Nonpublic business entities Fiscal years beginning after December 15, 2019 and interim periods within the following fiscal year (December 15, 2020). The right implementation date for your dealership will depend on whether it is public or private. If it is public, the date is December 15, 2018. If you are private, you have an extra year. It is important to note that if a dealership wants to adopt ASU Topic 842 early, adoption has to be concurrent with, or take place after, implementation of International Financial Reporting Standard (IFRS) 15, Revenue from Contracts with Customers. What is IFRS 15? It is a five-step model that has to be applied to all contracts with customers. Not only does it specify how and when an IFRS reporter recognizes revenue, it also requires reporters to provide customers with disclosures that are both relevant and informative. Even though the guidelines don’t have to be implemented now, however, there is an important point to consider: the guidelines are to be applied on a modified retrospective basis that starts with the earliest period listed in a company’s financial statement. In other words, you will need information from 2017 and 2018 when you are preparing financial statements for 2019 so that any leases you have right now, or that you enter into, can be shown on your balance sheet after the guidelines go into effect.  Accounting Standards — continued on page 18 The New Lease Accounting Standards BY SUSAN MORGAN , THE NEWSLINK GROUP Rules sometimes change, especially in the business world. When the change is a significant one, those changes don’t just affect the day-to-day ways you conduct business. They can also significantly influence the business decisions you make going forward.