Explain in the nature of the recent FASB update ASU No. 2016- 02, Leases (Topic

Question

Explain in the nature of the recent FASB update ASU No. 2016- 02, Leases (Topic 842) Be sure to discuss the rationale for the new guidelines as well as a briet discussion as to how this rule will effect financial reporting for te future. Adeditionally, discuss any perceived benefits under current GAAP rules for classification as an capital lease. Explain in the nature of the recent FASB update ASU No. 2016- 02, Leases (Topic 842) Be sure to discuss the rationale for the new guidelines as well as a briet discussion as to how this rule will effect financial reporting for te future. Adeditionally, discuss any perceived benefits under current GAAP rules for classification as an capital lease. Explain in the nature of the recent FASB update ASU No. 2016- 02, Leases (Topic 842) Be sure to discuss the rationale for the new guidelines as well as a briet discussion as to how this rule will effect financial reporting for te future. Adeditionally, discuss any perceived benefits under current GAAP rules for classification as an capital lease.

Explanation / Answer

The new update has been put in place with an objective to increase transparency as well as comparability among organizations. Transparency and comparability is being increased by recognizing lease assets as well as lease liabilities on the balance sheet and providing all key and relevant information about leasing arrangements as disclosures.

Earlier leases accounting failed to meet the requirements of users of financial statements as faithful representation of leasing transactions was not provided. This update aims to provide faithful representation of leasing transactions.

In future financial reporting will become more transparent as lessees will have to recognize assets and liabilities arising from operating leases on the balance sheet. Thus financial reporting in future will recognize rights and obligations resulting from leases.

Perceived benefits under current GAAP rules for classification as a capital lease is that lease classification is determined when the lease is executed. One is not required to wait for the commencement of the lease.

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