Accounting for Leases
On February 25, 2016, FASB released Accounting Standards Update No. 2016-02, Leases (Topic 842). It 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.
On July 30, 2018, FASB issued ASU 2018-11 Leases (Topic 842) – Targeted Improvements that reduces costs and eases implementation of the leases standard for financial statement preparers. The ASU simplifies transition requirements and, for lessors, provides a practical expedient for the separation of non-lease components from lease components.
In November 2019, FASB released ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which modified the implementation date of the standard, as follows:
- Public business entities; not-for-profit entities that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or an over-the-counter market; and employee benefit plans that file or furnish financial statements with or to the SEC for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years
- All other entities for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.
Because FASB ASU No. 2016-02 already is effective for all entities within (1) above (that is, including not-for-profit conduit bond obligors), FASB retained the effective date for those entities, including smaller reporting companies. FASB also decided, consistent with having bucket two be at least two years after the initial effective date, to defer the effective date for all other entities by an additional year. Therefore, FASB ASU No. 2016-02 is effective for entities within (2) above for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early application continues to be allowed.
IASB Leases Standard
On January 12, 2016, the International Accounting Standards Board issued its much-anticipated leases standard, IFRS 16. The standard will require all leases to be reported on a company’s balance sheets as assets and liabilities.
IFRS 16 began as a convergence project with the FASB. However, the boards were unable to reach consensus on some key issues, and some significant differences between IFRS 16 and the new FASB standard remain.
IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019, with earlier application permitted (as long as IFRS 15 is also applied).
For more information about the IFRS 16, see the IASB’s webpage at iasb.org.
Fred Gill, Senior Technical Manager - Accounting Standards Team, discusses the new FASB Leases standard and its wide implications.More on AICPA TV