Pub. 5 2016-2017 Issue 2

Fall 2016 21 concern is the new standard’s impact on key business metrics, including working capital, current ratio, and return on assets, among other key financial metrics. Probably the most painful change to financial statements will arise from the impact to working capital, as the current portion of the new operating lease liability will have no current asset as an offset. The standard utilizes an accounting concept that considers the right-of-use lease asset to be a long term nonfinancial asset similar to intangibles and property, plant and equipment, even though you’ll be required to classify the portion of the lease liability to be paid in the coming year as a current liability. Deferred tax assets and liabilities may also be impacted. Because lease-related assets and liabilities are recorded differently for GAAP and tax purposes, this change in GAAP could significantly impact the size of deferred tax assets and liabilities as well as impact the deferred income tax expense. This won’t affect dealerships in terms of cash flow, but it could alter the perceptions of a dealership’s financial statement users. Are dealerships prepared for this transition? Probably not. Companies in all industries are just beginning to wrestle with the new standard, and ensuring proper implementation requires a few critical steps: • Performa thorough inventory of all outstanding leases. You can check your expense line items to ensure all potential agreements that are, or contain, a lease have been identified. • Determine if each agreementmeets the definition of a lease, and if so, determine if it is a finance lease or operating lease. • Read thevarious details embedded in the implementationguidance in preparation for before recording these leases on the balance sheet. • Start to gather information for disclosures as they are extensive under the new standard andwill require quite a bit of time and effort to gather the required information. What are the next steps? Consult with your accounting provider. The language in the new stan- dard is fairly straightforward; however, the actual implementation is likely to be more complicated than initially expected. Many nuances will be encountered and are best handled by consulting with a professional. Lewis Fisher, senior manager, has practiced accounting since 2000. He specializes in assurance and consultingwork for awide range of clients, and has experience directly in all phases of audits, including compliance testing, field work, and report preparation. He can be reached at (949) 623-4169 or lewis.fisher@mossadams.com. Sid Tobiason, a partner, has practiced accounting since 1978. He advises clients on federal income tax, estate tax, entity structure, the purchase and sale of businesses, ownership transition, and succession planning. He can be reached at (858) 627-1448 or sid.tobiason@mossadams.com . Reach your target audience a ordably. advertise get results DANI GORDEN Advertising Sales 855.747.4003 dani@thenewslinkgroup.com