When we use lease accounting software such as EZLease, it is so much easier to navigate accounting standards such as ASC 842, IFRS 16, and GASB 87, but just what do they all mean? This article will consider each one in detail.
The FASB (Financial Accounting Standards Board) has published the lease accounting standard to replace ASC 840. Since the beginning of 2019, public limited companies have been required to comply with this new standard.
ASC 842 has been put in place to define leases as contracts, or at least portions of contracts. This has the effect of granting control of this assetasidentifiable for a specified period, where there is an exchange of payment.
ASC 842 is all about increasing the visibility, in terms of disclosure, when it comes to leasing obligations, relating to both public and private companies and businesses. Private companies have been added to the list so that it is not just public companies that have to be more transparent with their lease accounting.
The objective of IFRS 16 is to report the information that will faithfully represent a company’s lease transactions. Its use is in forming the basis for users’ understanding of financial statements. This will be about amounts, timings, and the uncertainty of cash flows that concern leases.
IFRS 16 is a capital lease accounting standard. It was published in January 2016 and became effective on 1 January 2019. The standard requires lessees to identify nearly all of their leases on the balance sheet. It reflects the company’s right to use the asset for a period in terms of the payment liability that pays for the privilege.
GASB stands for Governmental Accounting Standards Board Statement and the accounting standard GASB 87 is about defining a lease. It will define one as conveying the right to use the nonfinancial asset of another entity. This will be specified in the contract for a certain period of exchange for a transaction. It originally just applied to public sector entities in the United States, but has been extended to the private sector too.
GASB 87 applies to the leases of capital assets to include land and buildings, as well as equipment leases.
Also, GASB has issued Statement No. 96 that expands the requirements to information technology that has subscription-based arrangements. This is to begin in the fiscal year of 2023.
Pieces of accounting software such as EZLease are available to make accounting for leases easier for those involved in this side of finance. This is because it simplifies lease accounting in respect of the above standards that need to be complied with. It ensures long-term compliance, in terms of leases concerning real estate and equipment. With 15+ years of being tried and tested as a piece of lease accounting software, EZLease works well in automating lease data management, lease accounting, and reporting processes. It will leverage deep accounting expertise and customer-first support. It comes recommended by all those who benefit from its use in their accountancy department. It is lease accounting dedicated and so perfect for those who manage these kinds of figures within their accounting systems.
In conclusion, we have to comply with these accounting standards, so we might as well have the software that makes it easier. EZLease is renowned for making a difference. This is no substitute still for knowing just what these various lease accountancy standards mean. So, hopefully, the above explanations will prove useful moving forward when it comes to correctly considering how to treat lease accounting figures in the accounts. It is important because it is about transparency to others reading the balance sheet. It is now the responsibility of affected companies to ensure transparency, by declaring leases correctly.