5609955 The Financial Accounting Standards Board (FASB) and Accounting Standards

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Nov 24, 2024

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Surname 1 Student's Name Instructor's Name Class Name Date The Financial Accounting Standards Board (FASB) and Accounting Standards 1.) Accounting Standards Update The Accounting Standards Update (ASU) 2023-01 on Leases (Topic 842) related to Common Control Arrangements was recently issued by the Financial Accounting Standards Board (FASB). The amendments in the Leases (Topic 842) issue will be effective "for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years" (Financial Accounting Standards Board). The ASU amendment on existing lease accounting standard, Topic 842, addresses the accounting treatment of leases between "common control arrangements" or entities under the same group of companies. The ASU provides effective guidance regarding the proper treatment of leases between companies that share common control. This information is crucial as it has a significant financial impact on the lessor and the lessee and affects financial reporting. In the first issue in the amendment, ASU mandates that entities should determine whether a related party agreement between entities under common control is a lease. This issue allows not-for-profit entities and private companies to decide if a lease exists and how to classify and account for it. This amendment is crucial as it helps not-for-profit entities and private companies who have found it costly and challenging in the future to determine the terms and conditions of a common control arrangement to apply Topic 842. This significantly helps to reduce diversity and costs for entities applying lease accounting requirements to common control arrangements.

Surname 2 The second issue of the ASU amendment deals with accounting for leasehold improvements. This amendment seeks to fix the challenges arising from a company spreading out the cost of the improvements when leasing a property from another company under common control. In this issue, ASU mandates that leasehold improvements associated with common control leases must be amortized by the lessee over the useful life of the improvements to the common control group, regardless of the lease term. This update provides better financial information for investors as it gives them better clarity regarding the accounting of leasehold improvements. The above updates by ASU are essential to accountants since they give practical guidance on accounting for leases in common control arrangements, which can sometimes be complex and hard to determine. The updates also help accountants avoid financial statement inconsistencies and misstatements since they get clearer and consistent accounting guidance regarding accounting for leasehold improvements associated with common control leases. For instance, if a company leases an asset from a party in a common control arrangement, an accountant can use ASU's guidelines to accurately measure the right-of-use asset and lease liability. Therefore, accountants must stay updated on changes in accounting standards to enable them to have accurate financial information. 2.) Concepts Statement The Amendments to Statement of Financial Accounting Concepts No. 8 (ASU) reviews the original Concepts Statement Number 8 by giving more guidance and clarification regarding the goal of general-purpose financial reporting. The ASU underscores the significance of the relevant representation of financial information. It highlights that information in financial reports should correctly represent economic phenomena, which is consistent with the objective of

Surname 3 Concepts Statement Number 8, which stresses the significance of financial reporting of the information obtained from financial reporting in making essential financial decisions. The ASU establishes a clear connection between the objective of financial accounting and Concepts Statement Number 8. For instance, it emphasizes the importance of general-purpose financial reporting in providing crucial information useful in assessing an entity's prospects for future net cash inflows. This principle aligns with the aim of Concepts Statement Number 8, highlighting that financial reporting should provide essential information to assist users in resource allocation.

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Surname 4 Works Cited Financial Accounting Standards Board. "Amendments to Statement of Financial Accounting Concepts No. 8." FASB Home , 2021, fasb.org/Page/ShowPdf? path=Amendments_to_Concepts_Statement_8- Chapter_1.pdf&title=AMENDMENTS+TO+STATEMENT+OF+FINANCIAL+ACCO UNTING+CONCEPTS+NO. +8%E2%80%94CONCEPTUAL+FRAMEWORK+FOR+FINANCIAL+REPORTING %E2%80%94CHAPTER+1%2C+THE+OBJECTIVE+OF+GENERAL+PURPOSE+FI NANCIAL+REPORTING&acceptedDisclaimer=true&Submit=. Accessed April 30, 2023. Financial Accounting Standards Board. "Leases (Topic 842): Common Control Arrangements." FASB Home , 2023, fasb.org/Page/ShowPdf?path=ASU+2023- 01%E2%80%94Leases+ %28Topic+842%29%E2%80%94Common+Control+Arrangements.pdf&title=ACCOU NTING+STANDARDS+UPDATE+2023-01%E2%80%94Leases+ %28Topic+842%29%3A+Common+Control+Arrangements&acceptedDisclaimer=true &Submit=. Accessed April 30, 2023.