The Financial Accounting Standards Board (FASB) recently delivered an unwelcome holiday season body blow to the NFP world (and privately owned companies as well).
Working hard to earn the title of Grinch, the FASB decided on November 10 not to defer the new lease accounting standard for a third time. The previous justifiable deferrals of the original implementation date were caused by the Pandemic, as many organizations were shut down or forced to adapt to their new reality.
The new lease accounting will take effect for fiscal years beginning after December 15, 2021, and for interim fiscal periods beginning one year later. This standard requires all lease obligations to be recognized on the balance sheet of the organization, with only minor exceptions. Management could be in for some surprises as bank loan covenants might be impacted because of the new debt on the balance sheet. Additionally, an NFP organization will need to not only implement the lease accounting for future years but also to retroactively recalculate the impact of the new accounting for prior years. This is required even if the NFP decides to adopt a “cumulative change” approach to implementation. In short, NFPs shouldn’t underestimate the amount of work involved in this effort. Many organizations have already found the implementation more difficult than they originally anticipated.
To say I disagree with the Grinch’s action is to put it mildly. Many NFP organizations have been operating on a shoestring budget for extended periods of time, not to mention the fact the job market for accountants is extremely tight. This means just finding the bodies to do the work is a difficult proposition. Mercifully, many NFP organizations have fiscal years such as June 30, giving them some more time to complete the required work. Nevertheless, it is imperative to begin working on this project as soon as possible so the delivery of financial statements to donors and other stakeholders is not delayed.
Perhaps the FASB should adopt green as its new official color?