Impact of Accounting Standards Update ASU 2016-02, Leases on WM Company

Impact of Financial Accounting Standards Board (FASB) Accounting Standards Update ASU 2016-02, Leases
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Impact of Financial Accounting Standards Board (FASB) Accounting Standards Update ASU 2016-02, Leases
ASU 2016-02 impacts all companies that engage in lease contracts and firms that pay leases. This is because the action creates a necessary legal need for business organizations and companies to consider the operating lease assets and assets during balance sheet preparations. The main aim was to sort out the issue complained by several companies that the preexisting lease accounting standards could not meet the complete financial statement requirements. To gain some insight into the impact of the ASU 2016-02, this report will discuss its impact on the recording of leases, the impact of reporting a company's leases, the impact of lease concessions or modifications on the reporting of a company's leases, and the comparison and contrasts that the impact of ASU 2016-02 leases has on the financial ratios of a company.
WM Company is an example in this report to present the impacts of the standards. It was founded in 1971 as a comprehensive waste management and environmental service company. Its headquarters are in Texas, occupying more than 30,0000 Square feet under the lease. The company's operating network involves about 300 landfill disposal sites, 400 transfer operations, and 155 recycling plants. The results show that WM company uses contingent rent when dealing with some of its leases(Casabona & Covile, 2018).Contingent rent refers to the type of lease payment which is not fixed but instead is based on the value amount of the future value of a certain factor which changes as time passes. An example, future sales rate or interests. This company leases equipment and property in the course of its business operations. Their leases have varying terms, which include purchase or renewal options, escalation clauses, restrictions, and other able penalties used to determine minimal lease payments.
Summarize the Impact of ASU 2016-02, Leases on The Recording of Leases
The company classifies its leases into operating, and capital leases, with its majority being operating leases with fewer lease terms. Given the company's network and heavy accounting for their plants and equipment, the new ASU 2016-02 update will significantly impact the company's recording and reporting of leases in the presentation of their obligations on the balance sheet. The company's current lease obligations will be recorded as debt. Due to the current standard update (Ma & Thomas, 2021), noticeable changes are in the financial statement representation because the accounting transition is relatively seamless. Given the company's high utilization in operating leases, there is an increase in interest as the rent bill will be replaced with amortization and interest that are below the line charges. However, the asset return will decrease.
Analyze the Impact of The Standard on The Reporting of Your Chosen Company Leases
The operating cash will increase because lease cash payments will now be classified as financing activities instead of operating expenses in the cash f...