FASB publishes US leasing standard

US STANDARD SETTER FASB has published its own leasing standard, weeks after the IASB announced in its own standard which brought around $3tn in liabilities onto company balance sheets.

FASB’s standard closely follows the IASB’s and affects all companies and organisations that lease assets such as real estate, aeroplanes, and manufacturing equipment.

As a result, lessees will have to recognise the assets and liabilities on their balance sheet.

“The new guidance responds to requests from investors and other financial statement users for a more faithful representation of an organization’s leasing activities,” stated FASB chairman Russell Golden. “It ends what the US Securities and Exchange Commission and other stakeholders have identified as one of the largest forms of off-balance sheet accounting, while requiring more disclosures related to leasing transactions.

“The guidance also reflects the input we received during our extensive outreach with preparers, auditors, and other practitioners, whose feedback was instrumental in helping us develop a cost-effective, operational standard,” added Golden.
Under the new guidance, a lessee will be required to recognise assets and liabilities for leases with lease terms of more than 12 months.

Adhering to US GAAP, the recognition, extent and presentation of expenses and cashflows arising from a lease by a lessee will depend on its classification as a finance or operating lease.

However, unlike current GAAP, which requires only capital leases to be recognised on the balance sheet, the new standard requires both types of leases to be recognised on the balance sheet.

The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.

FASB and the IASB spent ten years locked in convergence efforts, yet ultimately agreed to disagree about how corporate lease customers should report lease expenses on their income statements, with FASB settling on its dual approach.

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Fiona Westwood of Smith and Williamson.