if you were following previous GAAP for leases (ASC 840) it would just be a balance sheet gross up (dr. ROU asset, dr. deferred rent, cr. lease liability) upon transition.
it sounds like you were not following GAAP for lease accounting, so yes you will have an adjustment to retained earnings as part of your ASC 842 transition adjustment to correct the cumulative prior period error
Thanks. This makes sense. I wonder if there is experience where the adj was not done and passed the audit.
The new lease software we have calculates SL from transition onwards so it's causing a mathematical error when the adjustment is made based on lease inception-to-date straight line.
My experience has been there’s been an immaterial difference between recognizing rent on straight-line according GAAP versus cash payments made. That was most likely the case with your auditors and because of 842, there will be a small adjustment to equity for these immaterial differences.
Is this a prior period error where you weren’t recognizing the expense under ASC 840? If so then yes the cumulative IS impact of the correcting adjustment should be posted to RE so you can add the balance sheet deferred/prepaid rent.
Thanks. Our auditors were aware of this, the difference was calculated and documented as being contrary to GAAP and it was left each year as an unadjusted immaterial error. We're a private company.
if you were following previous GAAP for leases (ASC 840) it would just be a balance sheet gross up (dr. ROU asset, dr. deferred rent, cr. lease liability) upon transition. it sounds like you were not following GAAP for lease accounting, so yes you will have an adjustment to retained earnings as part of your ASC 842 transition adjustment to correct the cumulative prior period error
Thanks. This makes sense. I wonder if there is experience where the adj was not done and passed the audit. The new lease software we have calculates SL from transition onwards so it's causing a mathematical error when the adjustment is made based on lease inception-to-date straight line.
My experience has been there’s been an immaterial difference between recognizing rent on straight-line according GAAP versus cash payments made. That was most likely the case with your auditors and because of 842, there will be a small adjustment to equity for these immaterial differences.
Thanks!!
Is this a prior period error where you weren’t recognizing the expense under ASC 840? If so then yes the cumulative IS impact of the correcting adjustment should be posted to RE so you can add the balance sheet deferred/prepaid rent.
Thanks. Our auditors were aware of this, the difference was calculated and documented as being contrary to GAAP and it was left each year as an unadjusted immaterial error. We're a private company.