Impact of Financial Accounting Standards Board Accounting Standards Update ASU 2016-02 Leases on Amazon Incorporation Economics Models in USA
Abstract
Board (IASB) made an update to the Accounting Standards (No. 2016-02) on leases. The update deals with leases, and the new guidelines will impact the procurement and management of corporate leases. Previous lease accounting standards had faced a lot of criticism for not accounting for the financial requirements of those who use financial statements. This prompted the FASB to work to remedy these problems. The ASU 2016- 02 brings with it significant changes to financial statements and processes. This paper looks at Amazon.com Inc. to understand how new standards can be used to address the inconsistencies that arise in the prior guidelines on the reporting of leases. To analyze the change in the reporting of leases, we consider three elements: contingent rent, minimum rent expense, and the deferred rent liability. The changes brought about by the updated accounting standard change the overall value of a company. Corporate analysts mainly pay attention to the composition of the balance sheet and the alignment of the income statement of a company with its balance sheet. In conclusion, the GAAP guidelines on the treatment of leases has corrected the problems that were criticized in the previous guidelines. The ASU 2016- 02 leases have brought major improvement in the way leases are accounted for and will bring with it clear improvements in the estimation of the financial standing of companies. Though it will take some time and money to effectively adopt the guidelines, they will be beneficial to the companies in the long run.
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