FASB updates accounting for leasing standard

The Financial Accounting Standards Board issued an accounting standards update Monday to reduce cost and ease implementation of the leasing standard for financial statement preparers.

The ASU simplifies transition requirements. For lessors, it also provides a practical expedient for the separation of non-lease components from lease components.

The update also provides an option to apply the transition provisions of the new standard at its adoption date, instead of at the earliest comparative period presented in its financial statements; and a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are met.

“The targeted improvements in the ASU address areas our stakeholders identified as sources of unnecessary cost or complexity in the leases standard,” said FASB Chairman Russell Golden in a statement. “They represent the FASB’s commitment to proactively address implementation issues raised by our stakeholders to ensure a successful transition to the new standard without compromising the quality of information provided to investors.”

New accounting rule requires companies to report leases

The Enron accounting scandal happened nearly 15 years ago, but the announcement on Thursday of a new accounting rule shows that its impact is still being felt in corporate America.

The Financial Accounting Standards Board, the body that sets accounting rules, has issued a final rule that changes how companies account for most of their leases.

Though leases are similar to loans, companies have long been permitted to exclude most leases from their balance sheets. As a result, investors looking at a company’s financial statements may have struggled to calculate its true financial obligations. The new rule requires that the most common type of lease be included on a company’s balance sheet, potentially giving investors a more accurate picture of a company’s health.

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