How FASB Impacts Privately-Held Business Financial Statements

For privately-held businesses, the Financial Accounting Standard Board (FASB) lease accounting standard (ASC 842) has been coming down the pipeline for some time. In 2016, the FASB introduced the standard as part of its efforts to improve consistency and transparency across lease accounting. 

While the implementation deadline was delayed a number of times, the standard has been in effect for public companies since 2019. For privately-held businesses, it is effective for fiscal years beginning after December 15, 2021, and interim periods thereafter. For calendar-year filers, this means the standard became effective on January 1, 2022. 

Just as was for the public sector back in 2019, the road to compliance has been complex and time-consuming for private companies. Privately-held businesses continue to work through the challenges of lease data management, including centralizing the most up-to-date versions of their leases, reviewing service contracts for embedded leases, investing in and implementing new technology, and making decisions on practical expedients and accounting policy elections. Here are some of the effects you can expect to your financial statements moving forward. 

The Balance Sheet 

Under ASC 842, leases are still classified as operating or finance leases, and financial leases remain on the balance sheet. However, the new standard changes the definition of a lease and moves most operating leases onto the balance sheet. Under the prior standard, these leases were previously accounted for off-balance sheet, so the change can be significant. 

Lessees may elect to exclude leases with terms of 12 months or less from the balance sheet. However, this is only applicable for short-term leases with reasonable renewal periods. For example, if you have been renting the same location for ten years, even if it renews every twelve months, you cannot exclude the lease from your balance sheet because there is reasonable assurance that it will continue to be renewed. 

For a finance lease, lessees recognize amortization expense and interest expense, using the effective interest method. For an operating lease, you recognize lease expense on a straight-line basis over the lease term. Finance lease right-of-use assets and operating lease right-of-use assets must be listed separately, both from each other and other assets. Finance lease liabilities and operating lease liabilities must also be listed separately, both from each other and from other liabilities. 

To classify right-of-use assets and lease liabilities as current and noncurrent, lessees may use the same considerations used in classifying other nonfinancial assets (property, plant and equipment) and financial liabilities (debt instruments). 

Financial Statement Disclosure

The new standard also requires extensive disclosures intended to give financial statement users a clearer picture of a business’s financial health and any uncertainties of cash flows related to their leases. For privately-held businesses, disclosures include:

  • Nature of its leases

  • Information on leases that have not yet commenced

  • Accounting policy election regarding short-term leases

  • Related-party lease transactions

  • Maturity analysis for lease obligations

  • Finance and operating lease costs

  • Short-term and variable lease costs

  • Gain or loss from sale-and-leaseback

  • Weighted-average remaining lease term

  • Weighted-average discount rate

Contact Livingston & Haynes 

At L&H, we understand the challenges and needs of privately-held businesses. We help our clients plan, transition, and maintain compliance with regulatory requirements, such as the FASB Lease Accounting Standard. If you’d like to learn more or discuss your business’s other accounting, tax and advisory needs, contact me today. 

by Steven J. Haynes, MBA


Steven Haynes, MBA, is an administrative partner at Livingston & Haynes. Steve’s firm, Emerging Business Partners (EBPI), became an affiliate of L&H in 2007. Steve specializes in bookkeeping, payroll, and business advisory services, including tax, M&A, and funding and equity transactions, for technology, entrepreneurial, and emerging growth firms.

Privately Held CompaniesSteven Haynes