FASB Accounting Standards Updates for Clubs
ECLUB NEWS |
On Feb. 25, 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), its long-awaited final standard on the accounting for leases. While sometimes it can be difficult to see real-world impact of accounting standards, particularly, for the private club industry, this is one standard that the industry should carefully analyze and prepare for its implementation. Leasing has long been a staple of club financing, particularly in relation to golf carts or golf course maintenance equipment, and many of those leases have been classified as operating leases. With the new standard, operating leases will be confined to history and all leases, excluding short-term leases, will require clubs to record an asset and a liability in relation to its lease payment obligations. What should clubs think about in addition to the accounting consequences? Arguably, there are three areas that clubs should consider:
1. Bank covenants under existing debt obligations–how will the requirement to record these lease liabilities affect your club’s ability to meet existing debt covenants? Clubs should be already discussing this with their lenders.
2. Capital funding requirements–many clubs have bylaw or other budgetary restrictions governing how fixed assets should be paid for. With all leases being reflected as assets on the club’s statement of financial position, will club’s now find that their capital funds are insufficient? Clubs should consider the impact of the new standard on their operating and capital budget methodologies.
3. Benchmarking–one of the primary arguments for changing the standard was to increase comparability among companies. Clubs have long struggled to properly benchmark areas of their operations, such as golf course maintenance, since some clubs had capital leases while others had leases that were treated as operating. Clubs should be aware that the benchmark data they currently compare themselves against could change significantly.
Visit Leases: FASB issues new guidance for more information on the new accounting standard.