Under current FASB and IFRS standards, companies have been able to account for certain leases under two separate methods: capital leases and operating lease. Capital leases call for bringing the asset and liability onto the books and recognizing interest and depreciation expense. Operating leases allows for companies to leave the asset off the book and recognize the entire cost as a rental or lease expense.

Possible accounting changes may be coming in the way that companies will have to recognize all leases as capital leases, no matter how they fall into FASBs 4 criteria or IFRSs basic guidelines. The push behind this change is that with only one way to account for leases, company financial statements will be more comparable from business to business and will ultimately help the investor.

To make this change happen, $1.25 trillion in assets will be added to companies’ books according the SEC. This could be a very costly expenditure for companies. The accounting that will be required to transition to and upkeep the new lease accounting will cost businesses significant dollars.

Some are saying that this is a great opportunity for companies to gain an advantage. By requiring all leased assets to be put on the books, companies can gain a competitive advantage by taking a deeper look at what these assets have actually been providing for their bottom line over the years. A large majority of companies only use basic spreadsheets to keep track of their leases which offers little insight. If companies can utilize big data to take a look at all these new assets, some gains could be made in ROA (return on asset).

In conclusion, companies will need to comply with whatever changes may come so they might as well seek to turn these seemingly negative changes into a positive.

References:

http://blogs.wsj.com/cfo/2013/09/10/its-midnight-on-sept-13-do-you-know-where-your-leases-are/?KEYWORDS=Lease+accounting

Payton W. Fedell