FASB Issues New Standard Regarding Leases

February 2016 | Posted in Audit
Three people looking at a laptop.

After a lengthy discussion period that has spanned the last several years, the Financial Accounting Standards Board has issued a new accounting standard that will result in companies recording all of their leases on the balance sheet versus current practice whereby operating lease commitments are only disclosed in the footnotes to the financial statements. This practice of off balance sheet financing has been a significant topic of discussion for financial statement preparers and users.

Under the new standard, there will be two types of lease transactions – finance and operating.  Both types of leases will result in the lessee recording a right-to-use asset which will be amortized, and a corresponding liability.  The new standard does provide relief in that preparers do not have to capitalize leases with an original term of twelve months or less.

The required implementation of this standard will follow closely after the date that companies are required to adopt the previously released accounting standard on revenue recognition.

The leasing standard will be effective for public companies for fiscal years and interim period within those fiscal years beginning after December 15, 2018.  For the remaining entities the standard will be effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.  Early adoption is permitted.

For more information, please contact Matthew Reiter or a member of the Whitley Penn Audit Team.

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