Pub. 5 2016-2017 Issue 2

Fall 2016 19 H ow many leases is your dealership party to? That question probably isn’t something you’ve given much attention to in the past. However, due to some recent changes in the accounting standards, it must now be addressed. The new guidance—contained in Financial Accounting Standards Board Accounting Standards Codification® (ASC) Topic 842, Leases—will require previously unrecognized assets and liabilities to be recorded on the face of most every dealership’s balance sheet. Also, since the manufacturer’s accounting manuals are written to approximate generally accepted accounting principles (GAAP), even your monthly manufacturer financial statements will be required to comply with this provision. The new guidance will likely have far-reaching consequences, impacting your dealership’s financial ratios, key performance metrics, and likely compliance with debt covenants. Here’s an overview of some of the most common questions and some tips on how dealerships can begin to prepare. Continued on page 20