Subject: Request for Simplified Explanation of Charter School Audit and Lease Details
Hi everyone,
I came across an Audit of a charter school, and it seems like there’s a massive amount of lease money—hundreds of millions of dollars—moving around. I’m having a hard time understanding it, so I would really appreciate if someone could break it down in simple terms.
Here’s a link to the Audit: Audit Link
I’m particularly interested in this part about leases:
“The School adopted Financial Accounting Standards Board (“FASB”) Topic 842, Leases (“Topic 842”), using July 1, 2022, as the initial adoption date, along with certain available practical expedients. The School chose not to review whether its existing leases fit the new standards, and this means it is treating them as operating leases without reassessing certain classifications. As a result, the School recognized finance and operating lease liabilities totaling $210,306,971, which reflects the present value of future lease payments of $311,459,097. This figure is discounted at risk-free interest rates (from 2.79% to 3.35% depending on the lease term), leading to the recognition of right-of-use (ROU) assets amounting to $205,824,291. Although this new lease Accounting guidance had a significant impact on the School’s balance sheet, it did not notably affect its activities and cash flow statements.”
Is this a good place to ask for clarification?
Thank you!
One response
Sure! Let’s break this down step by step in simpler terms.
What is an Audit?
An Audit is like a financial check-up where an Accounting firm examines a company or organization’s financial records and operations to make sure everything is accurate and in line with the rules.
What’s Happening with Leases?
The charter school has to follow a new Accounting rule called Topic 842, which changes how they report their leases. A lease is when one party pays another party for the use of an asset, such as a building or equipment, over a specific period.
What Are the Changes Under Topic 842?
The school chose to follow some simplified options (called practical expedients) available under this new rule, meaning they did not have to re-evaluate every detail of every lease they have.
What Numbers Are Mentioned?
Right-of-Use (ROU) Assets: They also recognize about $206 million in assets, which is the value of the rights to use those leased properties.
Impact of These Changes:
In summary, the Audit reveals that the school has a big amount of money tied up in leases due to new Accounting rules, reflecting both what they owe and the value of what they are using, but it doesn’t really change their operational cash situation significantly.
And yes, it’s totally okay to post this question here! It’s a common area of confusion, and getting clarity is important for understanding financial documents.