MKS&H Articles

Lease Accounting Overhaul

[fa icon="calendar'] Mar 21, 2014 12:29:25 PM / by admin posted in lease, Audit and Accounting, accounting, building property

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Leases are an essential tool for many organizations, allowing them to gain access to property and equipment, while mitigating exposure to risks of asset ownership and reducing initial cash outflows with payments made over a set term. Whether they are a public or private company, or non-profit organization, an entity can lease a variety of assets for use such as vehicles, buildings, and construction and manufacturing equipment. The practical application of accounting for leases can be challenging, with highly tailored lease arrangements presenting additional challenges. Current guidance for lease accounting requires companies to classify leases as capital leases (on-balance sheet) or operating leases (off-balance sheet). Under these rules, future payment obligations for capital leases are recognized as debt liabilities, while payments due under operating leases are not reflected on the balance sheet. As leasing has become more prevalent, so has the support for financial statement presentation and disclosure that better reflects the economics of lease arrangements and provide increased transparency to users of the financial statements. The ongoing debate has centered on how to achieve greater transparency. Financial statement users are pushing for rules that would require lessees to recognize these assets and liabilities on their balance sheets.

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