The Implementation of US GAAP Update 2016-02

Abstract

We analyze the implementation of Accounting Standards Update (ASU) 2016-02, requiring operating lease assets and liabilities to be recognized in the balance sheet. We find that the standard resulted in large increases in balance sheet derived leverage for some companies, particularly in the Retail sector. It also had an impact on the valuation of operating lease liabilities relative to values derived from pre-ASU 16-02 methods, which on average produced values which were 11% higher. However, we find that the impact on new information has been marginal, even in firms where operating lease liabilities account for a large proportion of total liabilities. The reason for this is that the contribution of operating leases to leverage after implementation of ASU 16-02 can largely be predicted employing the data available prior to the standard.