The Financial Accounting Standards Board (“FASB”) recently issued Accounting Standards Update (“ASU”) No. 2018-11 with targeted improvements to ASC Topic 842, Leases, to (1) add an optional transition method that would permit entities to apply the new requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption, and (2) provide a practical expedient for lessors regarding the separation of the lease and non-lease components of a contract.

Prior to the amendments in ASU No. 2018-11, the upcoming requirements in ASC 842 had to be initially applied using a modified retrospective transition method under which lessees were required to recognize lease assets and lease liabilities on the balance sheet for all leases and provide the new and enhanced disclosures for each comparative period presented. In response to constituents’ concerns about unanticipated costs and complexities, ASU No. 2018-11 now allows entities, upon initial adoption, to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Under the new optional transition method, reporting for comparative periods presented must continue to follow the guidance under existing U.S. GAAP.


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Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, this week’s host, and I’m here today with Danielle Supkis Cheek, a Director on our Entrepreneurial Advisory Services team. Welcome back to the Playbook, Danielle.

Danielle: Thanks. Thanks for having me again.

Jen: So, we’ve done a series of accounting pronouncements from several of our other directors. What’s your perspective on some things that have been released recently?

Danielle: My big concern is actually the interplay between the various pronouncements. The pronouncements that we have coming out, particularly revenue recognition and the lease standards, are going to impact every single piece of the balance sheet, fairly simultaneously, within a one to two-year period.
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