At a corporate board meeting, one of the members indicates that the FASB has pas

Question

At a corporate board meeting, one of the members indicates that the FASB has passed a new accounting update to take effect concerning the nature of lease accounting. As of now the company has leases which are both capital in nature and operating. The company also has several forms of debt with banks. The board member asks you as the Chief Financial Officer to give a 5-10 minute presentation on a summary of changes and how those changes could impact the company.

-- Obviously I'm not asking for a presentation lol just some help on the summary of changes

Explanation / Answer

The major changes which you can use for presentagtion are as follows:

1. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months.

2. Unlike current GAAP—which requires only capital leases to be recognized on the balance sheet—now both types of leases will have to be recognized on the balance sheet.

3. More disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.

4. Some improvements that are intended to align, lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014.

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