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Lease accounting: Keep pushing ahead

FASB issued the new standard to increase transparency and comparability among entities

 

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In February 2016, FASB issued new lease accounting requirements in Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). Under its core principle, a lessee recognizes a right-of-use (ROU) asset and a lease liability on its balance sheet for most leases, including operating leases. This is expected to have a significant impact on most entities' balance sheets, considering how prevalent and routine leasing is to most businesses.

FASB issued the new standard to increase transparency and comparability among entities by recognizing leases on the balance sheet and providing more information about leasing arrangements so that users can assess the amount, timing, and uncertainty of cash flows from leases.

At first glance, adoption of the new lease standard might seem relatively straightforward. After all, is it not just about recognizing the present value of future lease payments on the balance sheet? But, as public companies can attest, adopting the new lease standard can be quite complex and time-consuming, with many important nuances that can impact the amounts initially recorded.

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Source: Journal of Accountancy

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