For many companies, it appears that leasing is here to stay. Especially for mid-sized companies that are growing and striving to succeed, finance executives view leasing as an important financing strategy.
However, the Federal Accounting Standards Board (FASB) is working on a change in the lease accounting standard that is giving finance executives reason to pause and reexamine their financing options. The proposed change would move all long-term operating leases onto the balance sheet as non-debt liabilities. At this point, finance executives have questions about how the change would impact their reporting of liabilities, and potentially alter key financial metrics such as ROA, debt-to-equity, and cash flow. For this reason, they also have questions about the proposed accounting change’s ripple effects on operating decisions and on a company’s ability to meet the terms of previously negotiated bank covenants.
To help gauge the potential scope of these concerns, CFO Research, in collaboration with CIT Group, surveyed finance and corporate leaders from small and mid-sized U.S. companies. The message is loud and clear: Leases, and in particular, operating leases are core elements in many of their growth strategies, and so it will be important to understand the consequences for their business of changing the accounting standard.
