Could the new Accounting Standards move companies from leasing real property to ownership of real property?
Currently, a lease can be either a capital lease, which is reflected on the tenant’s balance sheet, or an operating lease, which shows up on financial statements in the form of rent as a monthly expense. The proposed rule would treat almost all leases as capital leases. FASB argues that this rule would encourage transparency and give a more accurate picture of a company’s financial condition.
Although the new rules may improve disclosure and transparency, they have the potential to have a significant effect on the commercial real estate and equipment leasing industries. Many large companies have thousands of operating leases and one reason some of them choose to rent rather than acquire property is the way the property is treated for accounting purposes. The new rules would require a company to include virtually all of its leases on its balance sheet, as if it had purchased the property and was making loan payments rather than paying rent.
This small change could have a huge impact on large companies such as CVS, Wallgreens, and other national retailers