Update: FASB Issues New Guidance on Lease Accounting

On Thursday, February 25, 2016, the Financial Accounting Standards Board (FASB), the organization that sets accounting standards and rules for all public and privately held companies, issued an Accounting Standards Update (ASU) intended to improve financial reporting about leasing transactions (Topic 842).

The ASU will require that lessees record nearly all leases on the balance sheet. Lessors will see some changes too, largely made to align with the revised lessee model and the FASB’s new revenue recognition guidance.

Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current Generally Accepted Accounting Principles (GAAP), the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP—which requires only capital leases to be recognized on the balance sheet—the new ASU will require both types of leases to be recognized on the balance sheet.

For the full report, read the news release or FASB In Focus, a high-level plain-language description of the changes and what they mean for financial reporting.  An informational document, FASB: Understanding Costs and Benefits, and a video, Why a New Leases Standard?, are also available. On Tuesday, March 29, 2016, from 1:00 to 2:00 p.m. EDT, the FASB will host a live webcast.

Click here to reference our last update from November 11, 2015 on FASB Proceeding with Standard on Leases.

KatzAbosch would gladly be able to assist with any questions arising from this update.  Please direct questions related to this topic to Claudia Wolter, CPA, CCIFP, CCA at cwolter@katzabosch.com.

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