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FASB Releases Final Lease Standard

By:
Chris Gaetano
Published Date:
Feb 25, 2016

By Photos public domain [Public domain], via Wikimedia CommonsThe Financial Accounting Standards Board (FASB) today issued its final standard on leases after approving the measure this past November, according to a FASB press release. The publication of the standard concludes a decade-long process aimed at improving how firms account for lease transactions. Under the new rules, companies will need to bring total lease obligations onto the balance sheet as debt, counterbalanced by a "right-to-use" asset of the same value. 

How a lease will be treated will depend on whether it's Type A (things like vehicles and equipment) or Type B (things like real estate). This is in contrast to the International Accounting Standards Board (IASB) version, which uses a unitary lease accounting model. While the two boards tried to produce identical standards, they were unable to reconcile fundamental disagreements despite years of negotiation. Despite this difference, both versions still maintain the key principle of putting leases on the balance sheet, which is translatable from one system to another. 

“When the new FASB and IASB leases standards take effect, they’ll provide investors across the globe with more transparent, comparable information about lease obligations held by companies and other organizations,” said FASB Chair Russell Golden. 

The standard took effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2018. For all other entities, it will take effect for fiscal years beginning after Dec. 15, 2019, and for interim periods within fiscal years beginning after Dec. 15, 2020.