Today, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) intended to improve financial reporting about leasing transactions. Under the new guidance, organizations that lease assets—referred to as “lessees”—will be required to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. A lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. The ASU will also require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. Lessor accounting will remain largely unchanged from current Generally Accepted Accounting Principles (GAAP). However, the ASU does contain some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014.
The ASU on leases will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other organizations, the ASU on leases will take effect for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. Early application will be permitted for all organizations.
The FASB and International Accounting Standards Board (IASB) embarked on a joint project in 2006 to improve the financial reporting of leasing activities. The IASB issued its final standard on leases (IFRS 16) in January 2016.