...Leasing Customer Inserts His/her Name Customer Inserts Name of Tutor Customer Inserts Grade/Course (December 11, 2011) Outline ➢ Introduction ➢ Changes in Leasing accounting ➢ Effect of the changes on the industry ➢ Conclusion A lease is a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset for a certain time. Leasing is a common activity and agreement, which appears on company’s financial statement all the time, no matter fortune 500 companies or startup firms. Most of the companies will rent tangible property including office and machines that is called rental agreement. When it comes to accounting, leasing becomes one of the most important sources of the financial statement. Since 1977, Financial Accounting Standards Board (FASB) set accounting standards to regulate leases that show on financial statement. However, current accounting rules for leases unable to meet the needs of users of financial statements because they do not provide a truthful representation of leasing transaction (Financial Accounting Standards Board). As a result, Financial Accounting Standards Board (FASB) and International Financial Reporting Standards (IFRS) decided to create joint project to redefine the accounting rules for leases (IFRS 1). Therefore, the draft of new accounting standard were made in 2010 and expected to be...
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...February 25, 2016 In Focus Accounting Standards Update No. 2016-02, Leases (Topic 842) On February 25, 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The accounting by organizations that own the assets leased by the lessee—also known as lessor accounting— will remain largely unchanged from current Generally Accepted Accounting Principles (GAAP) (Topic 840 in the Accounting Standards Codification). “The new guidance responds to requests from investors and other financial statement users for a more faithful representation of an organization’s leasing activities,” stated FASB Chair Russell G. Golden. “It ends what the U.S. Securities and Exchange Commission and other stakeholders have identified as one of the largest forms of offbalance sheet accounting, while requiring more disclosures related to leasing transactions. “The guidance also reflects the input we received during our extensive outreach with preparers, auditors, and other practitioners, whose feedback was instrumental in helping us develop a cost-effective, operational...
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...ACCT 5321.001 Dr. Martin Taylor FASB/IASB Exposure Draft on Leases The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) published comment a revised Exposure Draft on Leases on May 16th, 2013 and closed on September 13th, 2013. Based on this exposure, two boards claimed that the existing financial reporting of leasing activities fails to meet the needs of users of financial statements. While the existing accounting principles require to record the leased assets and liabilities on the lessee’s financial statements under capital/finance lease but not under operational leases, the new approach would require a lessee to recognize assets and liabilities for all leases with a maximum possible term (including any option to extend) of more than 12 months. This new approach also changes lessor accounting that it more accurately reflect the leasing activities of different lessors. The boards received 786 comment letters in response to the 2010 Exposure Draft from entities and organizations from many industries, including nonpublic entities. Some respondents supported the effects of the proposed model, some respondents disagreed with the lessor accounting proposals. The reasons are that it was not consistent with the single accounting model proposed for lessees; it did not support the performance obligation approach; and the existing lessor accounting requirements still work well in practice. Respondents also concerned with the costs and...
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...Project In July, 2006, the Board voted to add to its agenda a project on lease accounting. The project will be conducted jointly with the US Financial Accounting Standards Board (FASB) and is expected to result in the publication of a joint discussion paper in 2008. The project will reconsider all aspects of lease accounting and is expected to fundamentally revise the way lease contracts are recognized in the financial statements of lessees and lessors. The Board directed the staff to establish a working group of individuals with significant experience and expertise in lease accounting to assist the staff and the Board with this project. (http://www.ifrs.org/Current+Projects/IASB+Projects/Leases/Meeting+Summaries+and+Observer+Notes/IASB+July+2006.htm) To explain the reason for adding the project to the agenda, I find two paragraphs in Exposure Draft that “Leasing is an important source of finance. Therefore, it is important that lease accounting should provide users of financial statements with a complete and understandable picture of an entity’s leasing activities. The existing accounting models for leases require lessees to classify their leases as either finance leases or operating leases. However, those models have been criticized for failing to meet the needs of users of financial statements because they do not provide a faithful representation of leasing transactions. In particular they omit relevant information about rights and obligations that meet the definitions...
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...activities have evolved, the concept of having one worldwide set of accounting practice standards has been talked about in various depths and stages along the way. There have been attempts to make international financial reporting more streamlined. This paper is intended to discuss the international financial reporting standards as they relate specifically to the United States convergence of U.S. GAAP to IFRS. The Financial Accounting Standards Board (FASB) is an organization of people who are assigned the task of developing U.S. GAAP (Generally Accepted Accounting Principles). The SEC (Securities Exchange Commission) recognizes U.S. GAAP as the rulebook for public companies in the United States to prepare financial statements. Similarly, the International Accounting Standards Board (IASB) is an organization assigned the task of developing IFRS (International Financial Reporting Standards). With the realization that there would be great benefit for the United States to develop accounting practices more accepted internationally, the IASB and FASB joined together in Norwalk, Connecticut in 2002 to discuss the common goals for international reporting. This meeting resulted in “The Norwalk Agreement” which produced a Memorandum of Understanding that says “each acknowledged their commitment to the development of high-quality compatible accounting standards that could be used for both domestic and cross-border financial reporting.” At this time, a timeline was set to start reviewing...
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...Operating Lease Running head: DEATH OF THE OPERATING LEASE 1 Death of the Operating Lease and its Impact on Leading U.S. Companies Mark S. Lynn Mount St. Mary’s University Copyright 2010, Mark S. Lynn Death of the Operating Lease Abstract The proposed elimination of operating lease treatment by the IASB and FASB, as outlined in 2 their discussion paper, Leases – Preliminary Views, will have a varying degree of impact on U.S firms. After a review of the evolution of lease accounting and a discussion of financial ratio analysis, this paper examines the impact of the proposed accounting change on common financial ratios of 142 large public companies. The proposal requiring the capitalization of all lease arrangements is generally detrimental to such financial measurements, with significant variability among industry sectors. Through surveys and interviews, it is further determined that while a majority of corporate financial executives do not support the proposed accounting change, they have yet to analyze the impact and prepare for the effects of the change within their own companies. Copyright 2010, Mark S. Lynn Death of the Operating Lease Death of the Operating Lease and its Impact on Leading U.S. Companies 3 “We are only tenants, and shortly the great Landlord will give us notice that our lease has expired.” ~ Joseph Jefferson (1897, p. 476). A lease is broadly defined as a contract by which an owner of property grants to another the right to...
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...General Accepted Accounting Principles to International Financial Reporting Standard: The Potential Change for Leasing The United States, via the US Financial Accounting Standards Board (FASB), International Accounting Standards Board, and SEC all have begun the process to migrate from General Accepted Accounting Principles (GAAP) to the International Financial Reporting Standard (IFRS). This migration has advocates for and against the change. A major change in the IFRS proposal is the accounting of leases. One noticeable aspect of the proposals involves classifying operating leases as assets. The proposed rule would, from the lessee perspective, consider all long term leases as assets and not as operating expenses.1 The tax implications of this change would be significant, long term operating leases are currently considered expenses. Since these leases are treated as current expenses and reduce income, they are not currently taxed. A financed lease, also known in the U.S. as a capital lease, is considered an asset and therefore flows to the income statement. A financed lease increases income and is therefore paid with post tax revenue and subsequently depreciated. 3 The current IFRS proposal would classify operating leases as expenses only if those leases are 12 months or less. This change would reclassify most leases under GAAP from operating leases to finance or capital leases under IFRS. These proposed changes could have wide ranging affects on real estate, automobile...
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...large companies and auditing firms began to realize the importance of the establishment of a single set of high quality accounting standards. With a common accounting language around the world, investors will be able to have greater comparability and greater confidence in the transparency of financial reporting worldwide. IFRS, acronym for International Financial Reporting Standards are financial reporting standards that have been adopted by International Accounting Standard Board (IASB). Increasing number of publicly held companies in many countries are now requiring or allowing the use of IFRS for the preparation of financial statement. In the United States, the Securities and Exchange Commission (SEC) have also proposed a “Roadmap” in incorporating the convergence of US Generally Accepted Accounting Principles (US GAAP) to IFRS with the help of Financial Accounting Standards Board (FASB) and IASB. The IASB and FASB, committed to improving IFRS and US GAAP and achieving their convergence, are also committed in providing public transparency and accountability by reporting their process in achieving their goals. In 2006, the IASB and FASB began to set out their plans of completing major projects in their issued Memorandum of Understanding (MoU). These priority major projects comprises of their joint projects on financial instruments, revenue recognition, leasing, insurance contracts, the presentation of other comprehensive income, fair value measurement, and the consolidation of...
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...1. Will there be one set of accounting standards in use throughout the world in the next five years? Currently many countries have been using Accounting guidelines based on the International Financial Reporting Standards (IFRS) these are managed by the International Accounting Standards Board (IASB). The United States holds companies accountable to Accounting Guidelines maintained by the Financial Accounting Standards Board (FASB) which issues the Generally Accepted Accounting Principles (GAAP) in the U.S. markets are overseen by the Securities and Exchange Commission (SEC). The United States Financial Community is actively looking at the possibility to transition to one global accounting standard; One step towards future adoption is the SEC has recently allowed foreign firms to file reports that conform to IFRS standards rather than mandating they prepare documents using GAAP. (Kimmel, Donald , and Jerry, 64) In July 2012 the SEC’s Office of the Chief Accountant released report outlining the SEC’s reviews of IFRS standards against GAAP standards to identify gaps. While the SEC did not make a recommendation on adoption in the future it was a first step in preparing for an eventual decision. What was found is that while IFRS is a comprehensive standard there are still steps that must be taken before the U.S. can adopt the standards. (PwC) In 2006 the FASB and IASB started work on reconciling the two policies and identified 12 areas in which the IFRS standards differ...
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...Accounting Horizons Vol. 26, No. 1 2012 pp. 125–133 American Accounting Association DOI: 10.2308/acch-50087 COMMENTARY Some Conceptual Tensions in Financial Reporting American Accounting Association’s Financial Accounting Standards Committee (FASC) Yuri Biondi, Jonathan Glover, Karim Jamal (Chair and principal co-author), James A. Ohlson, Stephen H. Penman, Shyam Sunder (invited principal co-author), and Eiko Tsujiyama SYNOPSIS: We examine four key conceptual tensions that are at the heart of many financial reporting dilemmas: stocks versus flows, ex ante versus ex post, conventions versus economic substance, and top-down design versus bottom-up evolution as sources of accounting practice. Associated with each of these conceptual dimensions is an accounting duality; in some cases, one side (e.g., stocks) is easier to measure in a reliable manner, while the other side (e.g., flows) is easier to measure in other instances. We suggest that financial reporting would benefit from a willingness to pay attention to, and find compromise between, both sides of these tensions; forcing a choice of one over the other does not serve to improve financial reporting. Keywords: conceptual tensions; stocks-flows; ex ante-ex post; conventions-economic features; design-evolution. JEL Classification: M40. INTRODUCTION I n the developing of financial reporting, accountants have had to repeatedly deal with some basic conceptual tensions that arise due to the very nature of accounting...
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...______________________________ Stephen R. Bowers, Ph.D. Committee Member ______________________________ James Nutter, D.A. Honors Director ______________________________ Date OFF-BALANCE SHEET FINANCING Abstract In today’s world, leases appear far and wide; they are commonplace throughout the business and accounting frontiers. Accounting for leases, however, is not so clear cut. Since there are various ways to account for leases, many companies pick and choose which they feel best suits their situation, even when this sweeps dirt under the rug along 3 the way. The financial procedures for dealing with leases should entail benefits as well as limitations to ensure each company is fairly representing all of its financial information. Off-balance sheet financing is one of the hot topics in accounting for leases because of the implications it imposes on financial reporting. This thesis will discuss these implications, as well as the continuing search for convergence of FASB and IASB as they strive to make leases as transparent and honest as possible. OFF-BALANCE SHEET FINANCING Leases: Off-Balance Sheet Financing and the Strive for Transparency Today Historical Perspective Lease accounting dates back well into the early...
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...Accounting Standards Board ACC/541 Accounting Standards Board Currently the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) are working on a joint venture known as the Norwalk Agreement that will most likely affect current and future individuals within the accounting field. Discussed within is the relationship between the IASB and FASB, the IASB equivalents of the original FASB pronouncements, and how a Master’s of Science in Accountancy program can prepare a student for a professional life within the field that will likely be affected by both boards. The History and Relationship of the IASB and FASB In 1973 both the FASB and International Accounting Standards Committee (IASC) were formed. FASB was created with the mission to establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernmental entities providing decision-useful information to investors and other users of financial reports (Financial Accounting Standards Board, n.d.). The IASC began as the first body to set international standards and in 2001 the IASC became independent and further known as the IASB. Since 2001 the IASB has issued multiple International Financial Reporting Standards (IFRSs) that are currently permitted or required for more than 100 countries. In 2002 FASB and IASB began working with each other to improve and converge U.S. generally accepted accounting principles (GAAP) and IFRS (Financial...
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...Proposed Accounting Standards Update (Revised) Issued: May 16, 2013 Comments Due: September 13, 2013 Leases (Topic 842) a revision of the 2010 proposed FASB Accounting Standards Update, Leases (Topic 840) This Exposure Draft of a proposed Accounting Standards Update of Topic 842 is issued by the Board for public comment. Comments can be provided using the electronic feedback form available on the FASB website. Written comments should be addressed to: Technical Director File Reference No. 2013-270 The FASB Accounting Standards Codification is the source of authoritative generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. An Accounting Standards Update is not authoritative; rather, it is a document that communicates how the Accounting Standards Codification is being amended. It also provides other information to help a user of GAAP understand how and why GAAP is changing and when the changes will be effective. Notice to Recipients of This Exposure Draft of a Proposed Accounting Standards Update The Board invites comments on all matters in this Exposure Draft and is requesting comments by September 13, 2013. Interested parties may submit comments in one of three ways: Using the electronic feedback form available on the FASB website at Exposure Documents Open for Comment Emailing a written letter to director@fasb.org, File Reference No. 2013270 Sending written comments to ―Technical Director, File Reference...
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...Prepared Remarks by Sir David Tweedie, Chairman of the International Accounting Standards Board (IASB), to the US Chamber of Commerce Event, “‘The Future of Financial Reporting: Convergence or Not?”’ Washington, DC, USA 10 March 2011 I would like to thank the US Chamber of Commerce and its Center for Capital Market Competitiveness for organising today’s event on the future of financial reporting. I have a great affinity with the United States and have always enjoyed my time here. With that in mind, it is not surprising that we at the IASB and the Financial Accounting Standards Board (FASB) have worked so successfully in partnership over the past decade. I am delighted to present at the same event as my friend and colleague, Leslie Seidman. This event on the future of financial reporting is timely. Years from now, we will look back on 2011 as a year when the future path of financial reporting was determined. There are two key activities coming to a head this year. First, the IASB and the FASB are now nearing the completion of a nine-year programme to improve International Financial Reporting Standards (IFRSs) and US generally accepted accounting principles (GAAP) and to bring about their convergence. Second, the US Securities and Exchange Commission (SEC) will make a decision on the use of IFRSs by US domestic companies. The SEC’s decision will be felt well beyond the borders of the United States. Today, more than 100 countries either require or permit the use of IFRSs for listed...
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...Revenue Recognition: Where it Will Take Us By Robert Bloom and Jacob Kamm Financial Executive • SUMMER 2014 FINANCIAL REPORTING Since 2008, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have collaborated on a converged revenue recognition standard. Current U.S. Generally Accepted Accounting Principles (GAAP) standards related to revenue recognition are essentially rules-based, containing over 200 specific requirements related to revenue recognition. In FASB's news release of May 28th, Chairman Russell Golden stated "the [new] revenue recognition standard represents a milestone in our efforts to improve and converge one of the most important areas of financial reporting. It will eliminate a major source of inconsistency in GAAP, which currently consists of numerous disparate, industry-specific pieces of revenue recognition guidance." The wide-ranging converged standard eliminates detailed industry-specific codification contained in GAAP and streamlines revenue recognition guidance by superseding numerous standards issued by the FASB, the Securities and Exchange Commission (SEC), the Emerging Issues Task Force (EITF), and the American Institute of Certified Public Accountants (AICPA). The converged revenue recognition standard acts as a roadmap on how standard setters will approach other issues, including leasing. SUMMER 2014 • FinancialExecutive Fundamental to the new standard is that revenue...
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