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What Is GAAP Lease Accounting?

What is GAAP lease accounting?

The Financial Accounting Standards Board (FASB) uses Generally Accepted Accounting Principles (GAAP) as the foundation for its approved accounting methods and practices. This set of rules encompass the complexities and legalities of business and corporate accounting. GAAP heavily influences how business approach lease accounting, 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 in a way that manipulate 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
  • Account for each lease and meet the ongoing disclosure requirements about cash flows

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.

Matt Waters, CPA

Lease Accounting Subject Matter Expert with over 15 years of Management Experience in Accounting and Finance