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Business and Policy Areas
Business and Policy Areas

FASB Issues Leasing Standard

March 4, 2016

After years in process, the Financial Accounting Standards Board (FASB) issued its new standard on accounting for leases. The revised guidance will have the greatest impact on lessees who will now be required to recognize a right-of-use asset and an offsetting liability for all leases with terms greater than 12 months. The right of use asset will be amortized over the life of the lease.

Leases will be classified as either operating or finance based on criteria similar to those used today, but without the bright-line distinction. In the Statement of Activities, operating leases will result in straight-line rent expense, much as current accounting for operating leases. Finance leases will result in a front-loaded expense similar to the current accounting for capital leases, except that the expense will be classified as interest.  

Accounting by lessors is largely unchanged, but has been updated to align with certain changes to the lessee model. For example, certain glossary terms that are applied by both lessees and lessors have been updated so that terminology is used consistently. Also, key aspects of the lessor model have been conformed to the recently issued revenue recognition guidance.

The standard is effective for public entities (including not-for-profit organizations that are conduit bond obligors or that have other publicly traded debt) for fiscal years beginning after December 15, 2018 (FY20 for most colleges and universities) and for all other entities for fiscal years beginning after December 15, 2019 (FY21). Early adoption is permitted for all entities.

The full text of the standard can be found here. During the next year, NACUBO will provide resources to assist entities that follow FASB guidance in adopting the new standard.


Sue Menditto
Director, Accounting Policy