Staying compliant is a challenge for any business, but for large, international corporations, there is a lot on the line when straying from the rules. For companies in the U.S., new regulations are headed their way that could have significant impacts on their balance sheets.
Thursday (Feb. 25) reports said the Financial Accounting Standards Board (FASB) has adopted a new rule to come into effect before the end of the decade, meaning companies that have a lease on properties or equipment will be required to include those assets on their financial reports.
The rules only apply for leases with terms of more than 12 months, according to reports.
Under current U.S. GAAP, only capital leases must be identified on corporate balance sheets; beginning mid-December 2018, both finance and operating leases will need to show up.
In an interview with CFO, KPMG Global Leasing Standards Leader Kimber Bascom explained that the new guidelines “will significantly increase [corporates’] assets and liabilities, in some cases, without any related change in their equity.”
“So basically,” Bascom continued, “it makes the organization look bigger if they have a lot of leases.”
Reports and industry experts said that this change could mean that investors are given the impression that corporations are less efficient in their cash management and investing strategies.
“To the extent that investors may not have thought of leases as part of the population of the company’s assets and liabilities in the past, this now gives them a different perception about how lean an organization is in accomplishing its business objectives,” said Bascom.
The executive added that the change means CFOs should be clear with investors about their leasing arrangements.
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