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Accounting Client Response

ng research issue’, ensuring timely and updated information and news about the release of new accounting standards to major users and alleviating the ‘risk of noncompliance with standards making the literature easier to use’. (Internet: fasb.org)
It is worthwhile to highlight the fact after an extensive research on FASB codification that leasing had a total volume of worth US $760billion alone in 2007 (prior to recession) but due to the complications of financial reporting standards, a mammoth sum of those lease contracts went unreported in financial statements of various business entities. Perhaps, the main reason behind this was the fact that leases were divided into two categories such as Operating leases and Capital or Finance leases by IFRSs and US GAAP and accountants recognized only the assets and liabilities arising from Capital leases’ in the company’s balance sheet. On the other hand, ‘for an operating lease the lessee simply recognized lease payments as an expense over the lease term’. This difference in recording of lease contracts and their categorization led to different technical issues such as misunderstanding and misinterpreting by accounting users who tended to believe that all lease contracts increases ‘assets and liabilities so they should be recognized in the financial statements of lessees and hence regularly adjusted those amounts in their balance sheets to evaluate assets/liabilities effects resulting from operating lease contracts.’ Secondly, the categorization of contracts also resulted in ‘similar transactions being accounted for very differently and reducing comparability for users of accounting information.’ And thirdly, the difference in reporting the two types ‘provided opportunities to structure transactions so as to achieve a particular lease classification.’ (News Release, 2009)
It was due to the above problems as defined by FASB, it along with IASB came up with a new approach in which classification of ...Show more

Summary

FASB accounting codification system was launched officially by US Financial Accounting Board in 2009 to facilitate the users of accounting information in private sector that is the non-governmental organizations by providing them a quick access to ‘all authoritative U.S…
Author : yullrich
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