Companies Expected to See Biggest Impact from New Leasing Standard

Published on March 29, 2016

The lease accounting standard that the Financial Accounting Standards Board plans to release this quarter is expected to have a major impact on many companies, requiring current off-balance sheet leasing activities to be reflected on balance sheets for the first time. 

Earlier this month the International Accounting Standards Board released its version of the standard, which differs in some key respects from FASB’s (see IASB Releases Lease Accounting Standard). A new study from LeaseAccelerator, a developer of equipment lease management software, examines the impact of the new leasing standards on major U.S. corporations, listing the off-balance sheet lease obligations of the 500 largest U.S. public companies. The report, “Who is Most Impacted by the New Lease Accounting Standards?” aims to provide greater awareness of the potential impact of the new lease accounting standards. 

Both the recently announced IFRS 16 and the forthcoming FASB ASC 842 will require companies to transfer their operating leases, previously only disclosed in the footnotes of their financial reports, onto their balance sheets starting in 2019, the report noted. They will replace IAS 17 and ASC 840 (formerly FAS 13), respectively. According to the IASB, listed companies around the world have around $3.3 trillion of leasing commitments over 85 percent of which do not appear on their balance sheet. 

The companies that are expected to be most affected by the new capital lease accounting standards will be those with the largest operating lease obligations. The off-balance sheet leases for a specific company can range from a few million dollars, on the low end, to tens of billions of dollars, on the high end.

Many companies will have to start as early as 2017 and effectively run two sets of books to be compliant  and ready for the 2019 deadline.