Churches and other nonprofits that follow generally accepted accounting principles (GAAP) for external financial reporting should be aware that the new lease accounting reporting standard has been deferred.
The accounting firm Batts Morrison Wales & Lee (BMWL) offered these details:
As widely expected, the Financial Accounting Standards Board (FASB) unanimously voted on October 16, 2019, to defer the effective date of its major new Accounting Standards Update (ASU 2016-02) related to accounting for leases. (This is the ASU that generally requires organizations to capitalize leases, including operating leases, with terms of more than one year.) The FASB deferred the ASU by one year for most nonprofit organizations. For organizations to which the deferral applies, the new effective date of the lease standard is for fiscal years beginning after December 15, 2020 (calendar years ending December 31, 2021 and non-calendar years beginning in 2021).
The deferral does not apply to a nonprofit organization that is a borrower of tax-exempt bonds and is considered a conduit bond obligor for securities that are traded, listed, or quoted on an exchange or over-the-counter market. The deferral does apply to conduit bond obligors of securities sold pursuant to a private placement offering.
This new lease reporting standard will apply to “many nonprofit organizations, including churches, that follow” GAAP, said CPA Mike Lee, a partner and the national director of audit and assurance services for BMWL.
“Simply put, the new standard will require organizations to recognize a lease liability (using present value techniques) with an offsetting asset on its statement of financial position (balance sheet),” Lee told Church Law & Tax. “The asset and liability will be written down over time. There are also implications to the statement of activities (income statement) and footnotes.”
Lee added that BMWL will publish detailed guidance in the coming months.
Editor’s note: Major changes in GAAP under Accounting Standards Update 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, are now in effect for churches and other nonprofits following GAAP for external financial reporting. Mike Lee covered the most significant of these changes in this article for Church Law & Tax.