Accounting Update: FASB Lease ASU Released

Kathleen Hargrove on March 9, 2016

[vc_row][vc_column][vc_column_text]The Financial Accounting Standards Board (FASB) recently issued a long-awaited update to lease accounting.  Accounting Standards Update No. 2016-02, Leases (Topic 842) is designed to increase transparency regarding lease assets and liabilities, and provide better information to financial statement users.

This accounting standards update (ASU) applies to all companies and organizations with leases on assets such as real estate, airplanes, construction equipment and manufacturing equipment.

Major Changes in Lease ASU No. 2016-02 Include:

  • Lessees will be required to record assets and liabilities for all leases with terms of more than 12 months on their balance sheets. This applies to ALL leases whether capital leases or operating leases.
    • Previously, lessees were only required to recognize capital leases on balance sheets according to generally accepted accounting practices (GAAP).
  • The update also requires lessees to include qualitative and quantitative disclosures to help financial statement users understand the “amount, timing and uncertainty of cash flows arising from leases.”

Effective Dates for Lease ASU No. 2016-02:

  • Public Companies: Effective for fiscal years (and interim periods within those fiscal years) beginning after Dec. 15, 2018
  • All Other Organizations: Effective for fiscal years beginning after Dec. 15, 2019, and for interim periods within fiscal years beginning after Dec. 15, 2020
  • Early application of these standards is permitted for all organizations.

FASB Chair Russel G. Golden stated in a press release that the lease ASU will provide a “more faithful representation of an organization’s leasing activities,” and help to rectify “one of the largest forms of off-balance sheet accounting.”

Accounting for lessors remains similar to previous GAAP standards.

FASB is hosting a live webcast on March 29, 2016 at 1:00 p.m. EDT to discuss the lease ASU and answer questions from viewers.  Webinar information is available by clicking here.

We hope this information has been helpful to you.  If you have questions about how the FASB Lease Accounting Standards Update affects your business, please contact your Whalen & Company representative.

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