On February 25, 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) also known as Accounting Standards Codification (ASC) 842. The new leasing standard ASC-842 presents dramatic changes to the balance sheets of lessees. Lessor accounting is updated to align with certain changes in the lessee model and the new revenue recognition standard ASC-606. The new leasing standard ASC-842 supersedes ASC-840 and was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.
Both IFRS 16 and ASC 842 are the result of the International Accounting Standards Board’s (IASB’s) and Financial Accounting Standards Board’s (FASB’s) efforts to meet that objective of improved transparency and comparability while improving financial reporting.
Just as the new Revenue Recognition standard (IFRS 15 and ASC 606) was a joint project between the FASB and IASB, the Leasing project began in a similar manner with many of the requirements in Topic 842 the same as the requirements in IFRS 16. However, unlike the converged standard for Revenue Recognition (IFRS 15 and ASC 606), the new leasing standard is not converged. This means there are differences in how the two accounting standards handle certain accounting transactions.