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Accounting for Leases: Guidelines for the New Standard ASU 2016-02 (Course Id 1476)

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Author : Jae K. Shim, Ph.D., CPA
Status : Production
CPE Credits : 7.0
IRS Credits : 0
Price : $62.95
Passing Score : 70%
NASBA Technical: Yes
Primary Subject-Field Of Study:

Accounting - Accounting for Course Id 1476

Description :

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (ASC 842), which will replace the prior lease guidance in 2019 by providing new requirements of financial accounting and reporting for lessees and lessors. This new standard represents the first comprehensive overhaul of lease accounting since FAS 13 was issued in 1976. The new guidance will affect entities across all industries because most companies enter into contracts that contain leases to support their business operations. Lessees will likely see the most significant changes as they are required to recognize substantially all leases on their balance sheets with a corresponding right-of-use asset. While lessor accounting remains similar to previous guidance in most respects, there are some important changes. For example, certain principles of the lessor model are updated to align with changes to the lessee model and the new revenue recognition standard (ASC 606).

The new lease guidance introduces significant changes to lease accounting, such as lessees’ recognition of lease assets and liabilities, an exception for short-term leases, elimination of leveraged leases, new criteria for reporting sale leaseback transactions, increased use of judgment, and expansive disclosures. Moreover, entities are required to use a modified retrospective approach to reflect the effect of the new guidance in the earliest year presented in the financial statements. As a result, implementation of ASC 842 could have significant impact on companies’ financial operations - from general accounting and financial reporting, treasury, IT systems, tax, budgeting to forecasting functions. The change in lease standard presents both a challenge and an opportunity to enhance internal control and optimize the lease accounting and administration processes.

To minimize disruptive missteps and costly noncompliance, entities need to take a timely and thorough approach. This course is designed to help you navigate the complexities of this standard, identify the implications of it, and prepare for transition and implementation. It provides a working knowledge of the fundamentals of lease standard that can be applied, regardless of the company size, in the real world. 

Usage Rank : 0
Release : 2018
Version : 1.0
Prerequisites : General Accounting.
Experience Level : Overview
Additional Contents : Complete, no additional material needed.
Additional Links :
Advance Preparation : None.
Delivery Method : Self-Study
Intended Participants : Anyone needing Continuing Professional Education (CPE).
Revision Date : 13-Feb-2019
NASBA Course Declaration : Participants must complete the final examination within one year of purchase and with a minimum passing grade of 70% or better to receive CPE credit unless otherwise noted on the Course History page (i.e. California Ethics must score 90% or better). After logging in click on the Course History links on your My Courses page for the Begin date and Expire date for the Final Exam.
Approved Audience :

NASBA QAS - NASBA Registry - 1476

Keywords : Accounting, Accounting, Leases, Guidelines, New, Standard, ASU, 2016-02, cpe, cpa, online course
Learning Objectives :


Course Learning Objectives

Upon completion of this course, you will be able to:
  • Recognize the improvement over the lease accounting through the release of ASC 2016-02
  • Cite the key changes of the leasing practice compared to former ASC 840
  • Identify the applicability of the lease standard
  • Note the practical expedients available to organizations
  • Identify key concepts in lease accounting
  • Recognize the difference between U.S. GAAP and IFRS affecting the lease accounting practice
  • Identify the challenges and strategies in implementing the lease standard
  • Recognize the impact of the lease standard on the organizations
  • Identify types of leases for lessees and lessors
  • Identify the accounting rules for initial direct costs
  • Recognize the methods of accounting for different types of leases by lessees and lessors
  • Identify the presentation and disclosure requirements by lessees and lessors
Course Contents :

Table of Contents

Chapter 1 - Accounting for Leases: Guidelines for the New Standard ASU 2016-02

Course Learning Objectives

Part I. The Fundamentals of the Lease Accounting

Rising to the Challenge

The Reason for the New Guidance

The Significant Improvements for Lease Accounting

Key Changes of the Lease Requirements

Applicability

Section 1 Review Questions

Transition Guidance

Effective Dates

Practical Expedients

Leases Acquired in a Business Combinations

Transition Requirements

General Rules

Lessee Transition

Operating Leases

For Former Operating Leases Classified as Operating Leases

For Former Operating Leases Classified as Finance Leases

Capital Leases

For Former Capital Leases Classified as Finance Leases

For Former Capital Leases Classified as Operating Leases

Build-to-Suit Lease Arrangements

Lessor Transition

Operating Leases

Finance Leases

Leveraged Leases

Sale and Leaseback

Retrospective Reporting Compliance

Section 2 Review Questions

The Core Principles of Lease Accounting

Key Concepts

Definition of a Lease

Lease Classification

Lessee Accounting

Lessor Accounting

U.S. GAAP vs. IFRS

Section 3 Review Questions

Part II. The Impact of the New Lease Standard

Required Organizational Changes

Overall Challenges

Strategies

Exhibit A: Walgreens Boots Alliance 2016 Annual Report

Implementation Strategies

Enhancing Lease Administration Systems

Improving the Business Processes

Implementing Proper Controls

Increased Estimates and Judgments

The Risk of Material Misstatement

Enhancing the Quality of Accounting Estimates

Implications to Debt Covenants and Financial Statements

Debt Covenants

Financial Metrics

Implications to Real Estate Industry

Overview

Lessee (Tenants) Accounting

Lessor (Landlords) Accounting

Other Considerations

SEC Registrantsí Reporting Responsibilities

Sarbanes-Oxley Act Assessment

SOX Section 404

SOX Section 302

General Disclosure Rules

Exhibit B: FedEx 2017 Annual Report

Annual Disclosures in First Quarterly Filing

Financial Data Disclosure Requirements

Section 4 Review Question

Part III: The Application of the Lease Standard

General Rules

Identification of a Lease

Identified Asset

Substantive Substitution Rights

Portions of Assets

Right to Control the Use of the Identified Asset

Right to Obtain the Economic Benefits from the Use of the Identified Asset

Right to Direct the Use of the Identified Asset

Separation of Lease and Nonlease Components

Contract Combinations

Lease Commencement Date

Initial Recognition and Measurement

Lease Term and Purchase Options

Lease Payments

Initial Direct Costs

Discount Rate for the Lease

Subsequent Measurement

Lease Modifications

Disclosures

Section 5 Review Questions

Lessee Model

Measurement of the Consideration in the Contract

Determining the Consideration

Allocating the Consideration

Lease Classification

Initial Recognition and Measurement

Short-Term Leases

Finance Leases

Operating Leases

Subsequent Measurement

Remeasurement of the Lease Liability

Finance Lease

Operating Lease

Leasehold Improvements

Subleases

Lease Termination

Lease Modifications

Presentation

Balance Sheet

Income Statement

Statement of Cash Flows

Disclosures

Qualitative Disclosure

Quantitative Disclosure

Section 6 Review Questions

Lessor Model

Measurement of the Consideration in the Contract

Determining the Consideration

Allocating the Consideration

Lease Classification

Initial Recognition and Measurement

Sales-Type Leases

Direct Financing Leases

Operating Leases

Subsequent Measurement

Sales-Type and Direct Financing Leases

Impairment of the Net Investment in the Lease

Sale of the Lease Receivable

Underlying Asset

Lease Termination

Operating Leases

Subleases

Lease Modifications

Presentation

Sales-Type and Direct Financing Leases

Balance Sheet

Income Statement

Statement of Cash Flows

Operating Leases

Disclosures

Qualitative Disclosure

Additional Disclosure

Sales-Type and Direct Financing Leases

Operating Leases

Section 7 Review Questions

Sale and Leaseback Transactions

General Rules

Attributes of a Contract

Indicators that Control of the Asset Has Transferred

Lessee Involvement in the Construction or Design of the Underlying Asset

Recognition

Initial Measurement

Section 8 Review Questions

Glossary

Table of Examples

Transition Guidance

Example 1: Lessee Transition - Existing Operating Lease

Example 2: Lessee Transition -Existing Capital Lease

Identification of a Lease

Example 3: Contracts Contains a Lease

Separation of Components of a Contract

Example 4-1: Payments for Taxes and Insurance Are Variable

Example 4-2: Payments for Taxes and Insurance Are Fixed

Example 4-3: Common Area Maintenance

Lease Commencement Date

Example 5: Determination of the Lease Commencement Date

Lease Payments

Example 6-1: Purchase Option Price Included in Lease Payments

Example 6-2: Termination Penalties Included in the Lease Payments

Initial Direct Costs

Example 7: Determination of Initial Direct Costs

Determination of Discount Rate for the Lease

Example 8: Portfolio Approach to Establishing the Discount Rate for the Lease

Lessee Accounting Model

Example 9: Variable Lease Payments That Depend on an Index or a Rate

Example 10: Lease Classification - Operating Lease

Example 11: The Assessment of a Short-Term Lease

Example 12: Finance Lease Initial Recognition

Example 13: Initial and Subsequent Measurement

Example 14-1: Modification Accounted for As a Separate Contract

Example 14-2: Modification That Increases the Lease Term

Example 15: Quantitative Disclosure Requirements

Lessor Accounting Model

Example 16: Measuring the Consideration in the Contract

Example 17: Allocation of Consideration to Lease and Nonlease Components of a Contract

Example 18: Lease Classification -Sales-Type Lease

Example 19: Sales-Type Lease Recognition

Example 20: Direct Financing Lease Recognition

Example 21-1: Modification of an Operating Lease That Does Not Change Lease Classification

Example 21-2: Modification of an Operating Lease That Changes Lease Classification

Example 21-3: Modification of a Direct Financing Lease

Sale and Leaseback Transactions

Example 22: Lessee Obtains Control of Construction in Progress

Example 23: Gain on Sale

Example 24: Seller-Lessee Sells Assets < Fair Value

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