Nonprofit Blog

Does your company lease any of its vehicles or equipment? If so, and you follow U.S. Generally Accepted Accounting Principles (GAAP), some important news transpired earlier this year.

Lease Accounting Guidance: For several years, we have been following and relaying information regarding the changing standards for lease accounting. Finally on February 25, 2016, the Financial Accounting Standards Board (FASB) published its long-awaited standard on lease accounting. With this change (ASU No. 2016-02), the FASB intends to increase transparency and comparability among organizations by recognizing the assets and liabilities that arise from mostly all lease transactions. The chief purpose of the change is to provide lenders and other users of financial statements a more accurate picture of the long-term financial obligations of the companies."The new guidance responds to requests from investors and other financial statement users for a more faithful representation of an organization's leasing activities," FASB Chairman Russell Golden said in a statement. "It ends what the U.S. Securities and Exchange Commission and other stakeholders have identified as one of the largest forms of off-balance sheet accounting, while requiring more disclosures related to leasing transactions."

Everyone deserves a second chance or “mulligan,” as they say in golf. But lenders become understandably uneasy when borrowers reissue their financial statements. They wonder, “Why couldn’t they get it right the first time?” or “What are they trying to hide?” For most borrowers, financial restatements result from an honest mistake or misinterpretation of accounting standards, rather than from incompetency or fraud. But that’s not always true, as this hypothetical example points out.