Why us Solutions Products Resources About Contact Get demo Login Press enter to begin your search History of ASC 842 lease accounting standard Why were the standards introduced? Download handbook A brief history of lease accounting From Enron to FASB’s ASU 2016-02 Remember Enron and WorldCom? After those scandals, the U.S. Congress, and FASB introduced numerous regulations to cut down of fraud and provide investors with greater transparency into higher quality financial reports. Congress rolled out the Sarbanes-Oxley (SOX) Act to protect investors from corporate fraud. The previous standards One of the accounting loopholes the SEC identified was off-balance sheet operating leases. Under the ASC 840 standard, leases were classified as capital leases or operating leases. Capital leases were reported on the balance sheet. Operating leases were disclosed in the footnotes of your financial statements as “off-balance sheet” operating expenses and excluded from important financial ratios, such as return on assets, that investors use to judge a company’s performance. The different accounting treatment for operating leases made it challenging for investors to gain an accurate understanding of a company’s real indebtedness. Professional investors and Wall Street analysts with years of expertise made estimates, although they sometimes overestimated the liabilities arising from those obligations. However, the average Main Street investor couldn’t get the complete picture. The SEC determined the confusion was a big problem. They asked the Financial Accounting Standards Board (FASB), which creates the standards for U.S. General Accepted Accounting Principles (GAAP), to work with the International Accounting Standards Board (IASB), which creates standards for the rest of the world, on a new, global standard. ASC 842 Lease Accounting Handbook View the guide The current lease accounting standards FASB and IASB received comments from lessees, lessors, investors, and the general accounting community on one discussion paper and two exposure drafts. In February 2016, they finalized ASC 842 and IFRS 16. While the boards didn’t converge on a single lease accounting standard, both of these standards still bring a much higher level of transparency to leases. Now, companies must capitalize all leases longer than 12 months on their balance sheets as assets and liabilities. Leasing is just one of many areas to be overhauled by accounting boards over the past decade. The boards have also introduced major accounting policy changes for stock options, revenue recognition, corporate pension, and mergers and acquisitions. The goal of all of these accounting changes is the same as the lease accounting standards – to provide more transparency into financial reports of public companies – a benefit to shareholders. The history of these lease accounting standards goes back even further than the past decade. For a complete guide to ASC 842, read the timeline below. For an IFRS 16 timeline, click here. Solutions Lease Sourcing Lease Management Lease Accounting Lifecycle Automation Products LeaseAccelerator EZLease Global Lease Marketplace Managed Services Pricing Resources Webinars Events eBooks & Whitepapers Case Studies ASC 842 History IFRS 16 History About us Why us Company Leadership Alliances News Careers LeaseAccelerator 10740 Parkridge Blvd., Suite 701 Reston, VA 20191 United States Privacy Policy Terms of Use Legal Contact us North America: +1 866 446 0980 Asia Pacific: +61 2 8310 8814 Contact us Contact support Email Phone: +1 866 446 0980 Other LeaseAccelerator Sites LeaseAccounting.com Global Lessor Network Customer Login Online Training © 2021 Lease accounting by LeaseAccelerator. Copyright 2000-2021 LeaseAccelerator, Inc. All rights reserved. LeaseAccelerator is a Registered Trademark of LeaseAccelerator. The other logos (brand identities) presented on this website are property of their respective owners. We use cookies to ensure that we give you the best possible experience on our website.I ACCEPTFIND OUT MORE