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ARTICLE · 09 MARCH 2016

The New Lease Accounting Rules - Implications For Financing Agreements

Ropes & Gray LLP
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New updates to accounting standards issued by the Financial Accounting Standards Board ("FASB") on February 25, 2016 and by the International Accounting Standards Board ("IASB") on January 13, 2016 will dramatically change financial reporting with respect to leasing transactions.

United StatesAccounting and Audit
Ropes & Gray LLP'S Finance Practice
Ropes & Gray LLP'S Finance Practice
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New updates to accounting standards issued by the Financial Accounting Standards Board ("FASB") on February 25, 2016 and by the International Accounting Standards Board ("IASB") on January 13, 2016 will dramatically change financial reporting with respect to leasing transactions. The Accounting Standards Update ("ASU") issued by FASB, which mirrors the IFRS 16 Leases rules issued by the IASB in January, will affect all companies and organizations that lease assets. The new rules will require lessees to add to their balance sheets potentially large amounts of long-term lease obligations that were previously off-balance sheet items.

Under the current rules, companies have generally applied a classification test to determine the appropriate accounting treatment for lease arrangements. Under GAAP, leases are classified as either "operating leases" or "capital leases." Under IFRS, leases are classified as either "operating leases" or "finance leases." Under both GAAP and

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