Recently, the Financial Accounting Standards Board (FASB) enacted a new standard for companies and organizations with vehicle fleets. Merchants Fleet has investigated the new development and understands exactly what it might mean for companies. We are here to help businesses understand what the Board expects of them, give them the information they need, and help them comply with new standards. Whether you’re a big corporation or small business, our team of bright minds can help you manage your accounting methods. Get to know our company.
When the FASB voted to move forward with the new standard, they agreed to start requiring companies to include lease obligations on balance sheets. It established requirements for financial accounting and reporting for leases. The standard intends to improve company reporting about leases. All organizations, agencies, and companies that lease assets such as real estate, equipment, and vehicles, must comply with the new rule.
Before the new FASB standard, companies determined the accounting for a lease arrangement by classifying a lease as a capital lease or operating lease. For example, if you lease a fleet vehicle for almost all of its life, it would be a capital lease. If you lease a property for five years, it would be an operating lease. The lessee must recognize capital lease assets and liabilities on a balance sheet, but not operating lease assets or liabilities. Accountants criticized the old model, stating that it did not always provide an accurate representation of a lease.
In 2005, the U.S. Securities and Exchange Commission (SEC) recommended that someone make changes to the existing lease accounting requirements to make them more faithful and transparent. In its report, the SEC stated that there was $1.25 trillion in off-balance sheet lease commitments for registrants. In 2006, two Boards began work to improve accounting for leasing activities.
Now, lessees must recognize assets and liabilities related to leases with lease terms of more than one year. The new standard requires that a company include both types of leases on the balance sheet, not just capital leases. This will result in a more accurate representation of a lessee’s rights and obligations in a leasing agreement. The new FASB standard will come into effect on December 15, 2018 for public companies (fiscal year) and January 1, 2019 for calendar-year companies. For all other companies, the rule will come into effect for fiscal years starting on December 15, 2019 and for interim periods after December 15, 2020.
The U.S. FASB statement 13 defines whether a lease is capital or operating. This distinction will help you determine who has ownership rights, who takes depreciation for fleet vehicles, and who must treat lease costs as expenses. Merchants Fleet believes the new standard will affect businesses positively, and will not have a major impact on fleet clients. It does not affect a company’s ability to borrow or lease vehicles. We know it is our job as a lessor to keep you informed about the new standard, and have programs in place to do just that. View all our fleet compliance programs.
Some of our clients have already gravitated toward capitalized leases, rather than listing leases as operating expenses. This change has to do with the costs that must be capitalized, true operating expense, and the fleet. This will make the transition easier for lessees. Large companies with big commercial fleets and the ability to track large assets may have an easier time adapting to the new accounting methods. Smaller companies, on the other hand, may need to partner with a leasing company for more guidance and compliance assistance. It’s important to work with a lessor that understands the unique challenges of a small business.
Merchants Fleet understands the new FASB rule and can help large and small organizations properly account for their fleet leases. From determining the type of lease to helping you include it in your books, our team of knowledgeable staff members can ensure you comply with the new standards effortlessly. We’ve been in the business of helping companies stay in compliance with many complex regulations for more than 50 years. We have what it takes to help your company avoid the hassle.
Merchants Fleet compliance services can help small and large businesses understand ways to their balance sheets and abide by the new and existing FASB standards. But our compliance services don’t end there – here’s a look at what we can help you with:
Merchants Fleet has the solutions for virtually all your compliance and regulation needs. From FASB to DOT to FMCSA, we can help you sift through the complicated paperwork, reporting processes, and regulations compliance to keep your operation running without a hitch. Cut through the red tape and focus on more important aspects of business with help from Merchants Fleet. To speak with a representative about the new FASB standard and other compliance issues, contact us online or dial 866.653.2737.