The amounts recognized will be based on the present value of the future payments under the lease contract. Importantly, for the majority of lease contracts the amount of expense recorded each reporting period will not change compared with existing GAAP. For lessors, the final standards make only minor changes in existing GAAP, reflecting investor feedback to the FASB that existing lessor reporting is appropriate and helpful to them.
“This project started out with a very conceptual view of what lease accounting should be – based on years of research by a group of standards setters. That model would have been radically different from existing GAAP,” says Erik Bradbury, Financial Executives International's Professional Accounting Fellow. “Through its due process and the extensive outreach associated with two exposure drafts, the FASB learned from key stakeholders that there was not a need or desire for wholesale change to existing standards.”
The final standard took a targeted approach to fix the principal issue that was the impetus for the project: providing transparency about lease obligations of lessees, Bradbury adds.
“The FASB took a thoughtful approach that addresses the complexity of implementing changes that will be felt by companies that lease equipment,” he says. “While no change of this magnitude will be easy for an activity as pervasive as leasing, the FASB has done its best to help make implementation practicable and cost-effective.”
Find out more about the new leasing standard, including a detailed analysis of the impact of the standard, by clicking on the FEIconnect logo below.
