Financial reporting in 2020 has turned out to be more of a laborious exercise than most companies envisioned at this time last year. And, a Deloitte memo says that COVID-19’s ongoing impact isn’t making things any easier. The memo discusses some “top of mind” financial reporting and accounting issues that companies are dealing with as challenges resulting from the pandemic continue to evolve. Here’s an excerpt addressing accounting considerations for companies that may be thinking about optimizing their real estate footprint:
In connection with optimizing their real estate footprint on a go-forward basis, a number of companies are reevaluating their leases or lease portfolios. From an accounting standpoint, companies should consider whether a decision to no longer use a leased asset constitutes an abandonment of the asset. Accounting guidance generally requires a company to accelerate expense recognition for assets deemed “abandoned.” However, to be deemed abandoned, a company needs to assess whether it has the ability and would be willing to sublease the leased asset at any point during the remaining lease term. This may include considering the economic environment and the expected demand in the sublease market and will likely require a company to use more judgment when assessing longer remaining lease terms. The potential that a company would be willing to sublease an asset at any point in the future may preclude the company from considering an asset to be abandoned and thus preclude the acceleration of expense recognition.
Some of the other topics addressed in the memo include forecasting, non-GAAP disclosures, internal controls, stock compensation plans and awards, default risk on modified loans, goodwill impairment and modification of other contractual agreements.
-Lynn Jokela, TheCorporateCounsel.net September 16, 2020