What Lessees Need To Know Today About Reporting Leases Tomorrow

Companies that lease valuable assets — such as aircraft, real estate and heavy equipment — will soon have to recognize on their balance sheets the assets and liabilities generated by contracts longer than a year under Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842).

For a major retailer, airline or bank that leases significant assets, this change could cause billions of dollars of operating leases to appear on its balance sheet. The update also requires companies to disclose more information about leases in the footnotes to their financial statements.

Ushering in a new era in lease accounting

Today, lessees account for all of the payments on their operating leases on their income statements, but they don't account for future obligations on their balance sheets. Under the new standard, operating leases will move to the face of the balance sheet, rather than simply being disclosed in financial statement footnotes.