After working for almost a decade, the FASB has finally issued its new standard on accounting for leases, ASU 2016-02.1 The IASB issued its own version, IFRS 16,2 in January, and although the project was a convergence effort and the boards conducted joint deliberations, there are several notable differences between the two standards. Minimum Previous lease accounting guidance has long been criticized for not addressing the needs of financial statement users and FASB has spent several years on this project to address the concerns of users. ;wJb�r��G`�7���( ��uY���m�whq��*��)�f�y�Bϗ��TY�k���!I��WEz�f�HvX���U��V1�Q���h�*�=QR2�J>�iB��A�-�s0m�JS3���J��CI���. 4 ASU 2016-02 will be effective for public business entities for period beginning after December 15, 2018 (i.e., the period beginning January 1, 2019, for cal­en­dar-year-end companies), with early adoption permitted. The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. Minimum Lease Payments The guidance beginning in paragraph 840-10-25-4 defines what constitutes minimum lease payments under the minimum-lease-payments criterion in paragraph 840-10-25-1(d) from the perspec tive of a lessee and a lessor. Chapter 4 ASU 2015-02: Consolidation (Topic 810) -Amendments to the Consolidation Analysis ... and the order in which certain report paragraphs are presented Chapter 10 ... FASB Issues New Lease Standard – ASU 2016-02. Review Questions . FASB Issues Clarifications to Leases Standard. Examples 8-14, 8-22, 8-29, 8-30, 8-32, and 8-34 3. 3 For public business entities, certain not-for-profit entities, and certain employee benefit plans, ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods therein. 22), which was incorporated into ASC Topic 840-20 (previous GAAP, superseded by ASC Topic 842 as detailed in ASU 2016-02). That amendment clarifies the considerations that should be included in an analysis to determine … Z56a���R*�������cT6���\�σ�d.�����`�4���~ݘ��i�:�!-��y�,ƒƒԾ۲0��t@�L�RI��O��=( �P���?���oHk����[0_L�v�*��1ǜ�~���*1ɧ#o3�B����=/ro�1N�9�W��!�͂��`ρ�Bj%pW���+r^Q��އ3*��d6 IJR��]h�.��T�Np�(.��Ӹ>r���r�l�D���"���v9�X���;� The FASB issued ASU 2018-10 [1] which affects narrow aspects of the guidance in ASU 2016-02, Leases (Topic 842). Consequently, essentially all leases (of twelve months or more) will be recorded on a company’s balance sheet. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 453 0 obj <>stream At the inception of the lease, the lessee is required to determine whether the lease is a finance or operating lease and record the following: Paragraph 901.41 . Note that ASU 2016-02 also discusses various other technical accounting and presentation issues, inclusive of lease modifications, lease reassessments, related party leases, sale-leaseback transactions and qualitative and quantitative disclosures required in the lessee’s financial statements, as well as lessor accounting. For Finance Leases and Operating Leases, a lessee must recognize a lease obligation equal to the present value of the related lease payments, which includes fixed payments, variable payments based on a market index, residual value guarantees and the price to purchase the leased asset at the conclusion of the lease if reasonably certain that such option will be exercised, among other potential considerations noted in the lease, as defined and discussed in ASU 2016-02. The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments in accordance with paragraph 842-10-30-5(f) equals or exceeds substantially all the fair value of the underlying asset. August 2018 in Financial Reporting. Discussed the issuance of ASU 2016-02 and implications on sales of equipment with a guaranteed minimum resale amount. ;[ "=�]M$M�?�I��Ű IFRS 16, the IASB’s new leases standard, was issued on January 13, 2016. In March 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation: Improvements to Employee Share-Based Payment Accounting . In February 2016, FASB issued ASU 2016-02—Leases. Such interest and amortization expense are recognized separately in the income statement for Finance Leases. To determine the nature of its promise to … ASU 2016-02 does allow for multiple practical expedients, which may reduce the burden of transition and should be explored by all affected lessees to ensure the most efficient and effective transition approach is utilized based on the size, structure and complexity of each lessee’s business. By: Russ Madray. With limited exceptions (related to comparative financial statements in the areas of the new functional and natural expense analysis and the new liquidity and availability disclosures) ASU No. See ASU 2016-18 for examples. 7��!��� ���VYŖ\���^xU��>r����&m���Q ��K�G�"?���Pͼ�/��^�y�0�t��p�e5���m騣U���qsyT�����C���+�? It is important to note that ASU 2016-02 has removed “bright-line” tests, specifically related to criteria #3 and #4 above, that were previously used to determine if a lease should be classified as a capital lease. In February 2016, FASB issued ASU 2016-02, Leases (Topic 842). Re: Effective Date of ASU 2016-02, Leases (Topic 842) Dear Mr. Kuhaneck: The American Institute of CPAs (AICPA) is the world’s largest member association representing the accounting profession, with more than 418,000 members in 143 countries, and a history of serving the public interest since 1887. Fiscal years beginning after December 15, 2018, including interim periods, for: A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed or quoted on an exchange or an over-the-counter market, An employee benefit plan that files financial statements with the United States Securities and Exchange Commission, Fiscal years beginning after December 15, 2019 for all other entities, Early adoption is permitted for all entities. Riverwood 200 The amendments in this Update related to separating components of a contract affect the amendments in Update 2016-02, which are not yet effective but can be early adopted. ASU 2016 -03 also amends transition provisions to allow private companies to forego the preferability assessment the first time they adopt the accounting electives under the scope of ASU 2016 -03. Paragraph 1500.6. 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