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Fasb New Leasing Standard

In: Business and Management

Submitted By yinyuanabc
Words 1534
Pages 7
February 25, 2016

In Focus
Accounting Standards Update No. 2016-02, Leases
(Topic 842)
On February 25, 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment.
The ASU will require organizations that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases.
The accounting by organizations that own the assets leased by the lessee—also known as lessor accounting— will remain largely unchanged from current Generally Accepted Accounting Principles (GAAP) (Topic 840 in the Accounting Standards Codification).
“The new guidance responds to requests from investors and other financial statement users for a more faithful representation of an organization’s leasing activities,” stated FASB Chair Russell G. Golden. “It ends what the U.S.
Securities and Exchange Commission and other stakeholders have identified as one of the largest forms of offbalance sheet accounting, while requiring more disclosures related to leasing transactions.
“The guidance also reflects the input we received during our extensive outreach with preparers, auditors, and other practitioners, whose feedback was instrumental in helping us develop a cost-effective, operational standard,” added Mr. Golden.

Why Did the FASB Embark on a Project to Improve Financial
Reporting of Leases?
Under the current accounting model, an organization applies a classification test to determine the accounting for the lease arrangements. Some leases are classified as capital leases (for example, a lease of equipment for nearly all of its useful life) whereby the…...

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