Leasing businesses and firms form an important segment of the agglomerated business society. This is a type of business where the owners express their commitment to their customers while the customers reciprocate by showing loyalty and faithfulness. The 2016 Accounting Standards Update (ASU 2016-02) offered a new set of requirements for lessees and new implementation considerations as well. The 2016-02 ASU was issued by the Financial Accounting Standards Board (FASB) and it replaced the Generally Accepted Accounting Principles (GAAP). Apart from stipulating a new set of leasing requirements and considerations, the article also endeavors to provide similarities between the update and previous GAAP.
The main changes are based on the incorporation of assets and liabilities in leasing agreements. The GAAP did not consider assets and liabilities when leases were being offered. However, with the new 2016-02 ASU, lessees are required to recognize the liabilities and assets that arise from the leases. The 2016-02 ASU is broken into different segments that outline the requirements of both lessees and lessors. Also, a basis of their interactions and considerations is stipulated. FASB’s new guidelines also define the pertinent members of a leasing transaction. The key terms and models that are used when a lessee and lessor are engaging in a leasing agreement are also outlined.
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Since assets and liabilities are at the center of the FASB changes that are discussed in the article, they form the biggest part of the article. There is an outlook of leases on tangible or intangible assets, biological, construction, mineral, and inventory assets. Also, the liability of the same is definitively discussed. Regarding the similarities between the 2016-02 ASU and GAAP, the article sheds some light. They include the credibility assessment procedures, documenting, and legal verification among others. The authors of the article are keen to stipulate the definitive elements of a lease. They also discuss what forms a legally-binding lease, which further serves as an important reference point throughout the article.
