In
February 2016,
the Financial Accounting Standards Board (
“FASB”) issued Accounting Standards Update (
“ASU”)
No.
2016
-
02,
Leases
, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a lease (
i.e.
, lessees and lessors). The new standard requires lessees to classify leases as either finance leases or operating leases and record a right-of-use asset and a lease liability for all leases with terms greater than
12
months regardless of their classification. An accounting policy election
may
be made to account for leases with a term of
12
months or less similar to existing guidance for operating leases today. ASU
No.
2016
-
02
supersedes the existing guidance on accounting for leases. In
July 2018,
the FASB issued ASU
No.
2018
-
11,
Leases (Topic
842
): Targeted Improvements
, which allows for an optional transition method for the adoption of Topic
842.
The
two
permitted transition methods are now the modified retrospective approach, which applies the new lease requirements at the beginning of the earliest period presented, and the optional transition method, which applies the new lease requirements through a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU
2016
-
02
is effective for
the Company’s fiscal year ending
and the interim periods within that year.
The Company adopted this standard in the
first
quarter of the
2020
fiscal year using the optional transition method. The optional transition method enables
the Company to adopt the new standard as of the beginning of the period of adoption and does
not
require restatement of prior period financial information. As a result, prior period financial information has
not
been restated and continues to be reported under the accounting guidance that was effective during those periods.
The Company also elected the practical expedients that allow
the Company to carry forward the historical lease classification. At adoption,
the Company elected the following practical expedients: (
1
) the
“package of practical expedients”, pursuant to which
the Company did
not
need to reassess its prior conclusions about lease identification, lease classification and initial direct costs, (
2
) creation of an accounting policy for short-term leases resulting in lease payments being recorded as an expense on a straight-line basis over the lease term, and (
3
) to account separately for lease and non-lease components for all leases.
The Company has established an inventory of existing leases and implemented a new process of evaluating the classification of each lease. The financial impact of the adoption of the new standard in the
2020
fiscal year increased total assets and total liabilities by approximately
The financial impact of the adoption primarily relates to the capitalization of right-of-use assets and recognition of lease liability related to operating leases. See Note
5,
Leases, for additional information with respect to the impact of the adoption of the lease accounting guidance and the disclosures required by ASU
2016
-
02
and the related amendments.
In
February 2018,
the FASB issued ASU
No.
2018
-
02,
Income Statement - Reporting Comprehensive Income (Topic
220
): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
. This ASU allows for reclassification of stranded tax effects resulting from U.S. Tax Reform from accumulated other comprehensive loss to retained earnings, but it does
not
require this reclassification. This ASU is effective for
the Company’s fiscal year ending
and the interim periods within that year.
The Company adopted this ASU in the
first
quarter of its
2020
fiscal year and elected to reclassify the stranded tax effects resulting from U.S. Tax Reform. As a result of that election, the adoption of ASU
2018
-
02
did
not
have an impact on
the Company’s consolidated financial statements and disclosures.
In
August 2018,
the FASB issued ASU
No.
2018
-
13,
Fair Value Measurement (Topic
820
):
Disclosure
Framework—Changes to the Disclosure Requirements for Fair Value Measurement
. This ASU modifies the disclosure requirements for fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level
1
and Level
2
of the fair value hierarchy and the policy for timing of such transfers. This ASU expands the disclosure requirements for Level
3
fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income (loss). This ASU is effective for
the Company’s fiscal year ending
and for the interim periods within that year. Early adoption is permitted. ASU
2018
-
13
is generally required to be applied retrospectively to all periods presented upon their effective date with the exception of certain amendments, which should be applied prospectively to the most recent interim or annual period presented in the year of adoption.
The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements and disclosures.
