What was the primary accounting issue for lessees that lead to the issuance of ASU 2016-02?
A) Recording interest expense on the lease obligation.
B) Determining whether the lease meets the 90% of fair value test.
C) Off-balance sheet financing.
D) The measurement of the leased asset under a finance lease.

Question

Quizplus · Accepted Answer

The primary accounting issue for lessees that lead to the issuance of ASU 2016-02 was off-balance sheet financing. Prior to the issuance of this standard, lessees were able to structure leases in a way that kept the underlying asset and associated lease obligations off their balance sheets, which could create a misleading picture of the company's financial position. ASU 2016-02 requires almost all leases to be recognized on the balance sheet, which improves transparency and comparability of financial statements.

What Was the Primary Accounting Issue for Lessees That Lead