Real Estate Accounting Made Easy, 2nd Edition

5ACCOUNTING FOR OPERATING PROPERTY EXPENSES

As was noted in the previous chapter, on February 25, 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (ASC or Topic 842), which significantly changed the way in which leases are recorded by lessees. The previous lease standard, ASC 840, Leases, was criticized by industry participants for failing to provide good representation of operating lease transactions. Prior to the issuance of ASC 842, assets and liabilities inherent in operating leases were kept off–balance sheet of lessees. The new standard effectively brings the assets and liabilities related to operating leases into the balance sheet of lessees and does not fundamentally change lessor lease accounting of operating leases.

The new standard was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for any of the following:¹

1. A public business entity, as defined in U.S. GAAP.
2. A not-for-profit entity that has issued, or is a conduct bond obligor for securities that are traded, listed, or quoted on an exchange or an over-the-counter market.
3. An employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission (SEC).

Hence for most calendar year public companies the new standard was effective January 1, 2019. For all other entities, the new guidance was effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning ...