The Financial Accounting Standards Board (FASB) in the US have published an update to improve the current system of financial reporting regarding leasing transactions. The update will affect any companies that are leasing any assets in the form of property, vehicles, or general equipment.
The update will require all organisations that lease assets to record on the annual balance sheet all the company’s profits and losses created by said leases. The amendment has been made due to the board receiving multiple investors’ requests for a more transparent representation of a company’s leasing activities. This will allow for potential investors to see the organisations true financial position.
It will put an end to what the US Securities and Exchange Commission and Shareholders have described off-balance sheet accounting, which creates uncertainty as to the company’s financial standing.
In future, the FASB will require complete disclosure to allow potential investors to better understand the amount and timeframe of profits arising from leases, including both qualitative & quantitative data. This will ultimately provide additional information regarding the figures that are being detailed in company financial statements.
The update will take effect for public companies for financial years beginning after December 15th 2018. Early application will be allowed should the company require.