What is GAAP lease accounting?

The Financial Accounting Standards Board (FASB) is responsible for a large portion of the Generally Accepted Accounting Principles (GAAP) in the United States, which is the foundation for approved accounting methods and practices. This set of rules encompass the complexities and legalities of business and corporate accounting. GAAP regulates lease accounting and heavily influences how business approach lease management and lease administration.

One of the primary goals of GAAP compliance is to make the financial reporting process transparent. The new guidance to lease accounting guidelines is consistent with that goal, and is designed to improve transparency in a number of ways. According to FASB, the new leases standard will make for more straightforward comparability among organizations that lease buildings, equipment and other assets. Once the standards are in place, companies will have a better representation of the lessee’s obligations arising from the leases, and fewer opportunities for companies to structure lease transactions around desired balance sheet outcomes.

According to FASB, “early action is key to a successful transition” when it comes to the new guidelines. However, while the transition of moving operating lease obligations from the footnotes to the balance sheet to achieve compliance will be a considerable effort, FASB estimates the ongoing costs of providing the information need will be consistent with the current costs associated with complying with GAAP. Under existing GAAP, organizations are already required to:

• Identify leases
• Evaluate each lease to determine the appropriate accounting model (classification type)
• Account for each lease and meet the ongoing disclosure requirements about cash flows

Many companies are finding the new requirements to be much more complex though, particularly around moving operating leases to the new model and reporting/amortizing on the balance sheet. Compliance with the new guidelines is a significant undertaking, but comprehensive support is available – including a team of experienced attorneys, paralegals and lease administration professionals available to help achieve the quality and accuracy of critical lease data needed. Learn more about the lease accounting that can be used to manage and report on real estate, equipment and other leased assets for compliance with the new FASB and IASB standards. and lease management software that makes it easy to track lease details, manage critical dates, financial obligations and other crucial details.  More educational resources about the new lease requirements are also available directly from FASB.