In February 2016, the Financial Accounting Standards Board (FASB) updated the accounting treatment of Leases. Today, we will highlight some of the benefits and costs associated with new adoption of ASU No. 2016-02, Leases (Topic 842), as outlined by FASB.
The benefits of adopting the new standard are as follow:
It eliminates one of the largest source of off balance-sheet financing
It is the most reflective of financial position of lessee
It improves comparability
It addresses practice issues for preparers
It provides few opportunities to structure to obtain a reporting outcome
Now the cost associated in adopting the new standards are minor, and are similar to those to the current GAAP.
It will require additional, but limited personnel costs to evaluate current operating lesses
It will cause organizations to put additional processes and controls in place to ensure that the organization is capturing leasing activity on the balance sheet