When it comes to FINRA changing the content of their exams, it’s rare bridge to cross. More specifically, when it comes to a Series 86 Exam update, there are few.
The reason being: Accounting rules don’t change often. But, when they do, this exam tries to keep up. On that note, the Securities Training Corporation (STC) has recently updated their Series 86 practice questions to include a recent important change. In today’s post we cover this change. We also offer our best advice on how to deal with it, when it comes to the Series 86 Exam.
Series 86 Exam Update: Operating Lease Accounting
The relatively new Financial Accounting Standards Board (FASB) accounting standard (ASC 842) for operating leases has recently been incorporated into the STC’s practice questions.
In very general terms, the new accounting standard now treats operating leases as liabilities…and assets (it didn’t before).
Accounting treatment for operating leases prior to the new standard (which went into effect in December 2018) differed in that operating lease liabilities were simply noted in the footnotes of quarterly, and annual reports. Despite contractual obligations, operating leases were not categorized as liabilities.
After the change, an operating lease showed up as a liability on the balance sheet, and also as an asset – through the “right of use” of the leased asset.
Impact on the Exam
Although this accounting change is about 2.5 years old, we have yet to hear about them being tested. However, STC recently incorporated the change. Here’s how STC treats them (a good proxy for how they might be tested):
- If a company enters an operating lease, the company will now increase their liabilities, and assets (through the “right of use” treatment on assets). This differs than prior treatment where an operating lease did not affect the balance sheet. A rental expense or operating lease expense was the only impact. The balance sheet impact is the most noteworthy change.
- The corollary is that relevant ratios may also be impacted (e.g., return on assets).
Overall, we at Professional Exam Tutoring have only seen this change in the last two weeks. It still seems too early to gauge how exactly this might be tested but we’re keeping an eye out. That said, given that STC updated their testing material, we anticipate an update to the actual exam could potentially happen soon. If you need some help or have any questions, book a tutor here. Good luck studying!