Impact of Financial Accounting Standards Board (FASB)

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Accounting is the language of business, and it is not a dead language! The FASB is responsible for ensuring that all relevant and material financial information is properly codified in Generally Accepted Accounting Principles (GAAP).

The use of off balance sheet leases to distort the real liabilities of companies is a topic of long-lived concern. ASU 2016-02, Leases, is the most recent action of FASB to address this issue.

For this assignment you will select a company of your choice to write a six to eight (6-8) page report in which you:

  • Summarize the impact of ASU 2016-02, Leases on the recording of leases.
  • Discuss at least three (3) elements featured in the current information reported by your chosen company for its leases.
  • Analyze the impact of the new standard on the reporting of your chosen company’s leases.
  • Compare and contrast the impact that ASU 2016-02, Leases will have on the financial ratios of your chosen company.
  • Determine the impact of the changes to accounting for leases on the recommendations of stock analysts for your chosen company.
  • Use at least four (4) quality academic resources. Assigment will be check for plagiarism.

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Running head: ACCOUNTING STANDARDS

Accounting Standards Update
Name
Course
Professor
Date

1

ACCOUNTING STANDARDS

2
Accounting Standards Update

Summarize the impact of ASU 2016-02, Leases on the recording of leases.
In February 2016, the Financial Accounting Standards Board (FASB) created a new standard
concerning the accounting for leases. The standard was named ASU 2016-02. The new standard
largely considered the accounting process for leases in an organization’s books of accounts. In
this new standard, a lessee is required to record all its leases on its balance sheet. The standard is
a significant departure from the current regulations which do not require this consideration
(Zamora-Ramírez & Morales-Díaz, 2018). To understand the applicability of this regulation, it is
important to have an understanding of its scope. ASU 2016-02 concerns plant, property, and
equipment but it excludes;
i.

Leases on intangible assets

ii.

Leases to explore or use non-productive or non-generative assets

iii.

Leases involving biological assets

iv.

Leases involving inventory and,

v.

Leases involving assets under construction.
The standard defines a lease as a contract involving the transfer of rights to an individual or

an entity to control property, plant, and equipment for a specified period and in which there is an
exchange for consideration. The regulation requires that before the lease commences, the lessee
would have to consider or evaluate the contract to determine whether the lease is a short term
financial lease or it is an operating lease (Zamora-Ramírez & Morales-Díaz, 2018). Besides, the
lessee would have to measure the lease using the right of use asset which requires that all leases,

ACCOUNTING STANDARDS

3

apart from those which are accounted for under the short term lease exemption, to be recognized
and accounted for in the balance sheet.
At the initial point when the lease is recognized, the lessee is expected to measure the
liability to be accrued in the use of the lease, which should be at the present value of the lease yet
to be paid, and the corresponding return-on-use asset (Cornaggia et al., 2011). When measuring
the return-on-use asset approach, the lessee would include the following;
i.

Initial direct costs. These include costs such as legal fees, consultation fees, and
commissions already paid. These are costs which would not ha...


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