In February 2016, the Financial Accounting Standards Board (FASB), which defines the guidelines for US Generally Accepted Accounting Principles (US GAAP), published a new set of lease accounting standards known as ASC 842 that will replace the current set of standards, ASC 840.
The most significant impact of the new leasing standard will be to corporate balance sheets. Historically, companies were allowed to report certain types of leases, known as operating leases, in the footnotes of their accounting disclosures. However, under the new standard, companies will be required to report a right-of-use asset and lease liabilities for each lease as separate line items on the balance sheet. The result will be that an estimated $3 trillion of leases will transfer onto corporate balance sheets over the next few years as companies adopt the new standards. In addition to an increase in total assets and liabilities, companies may also experience changes to key financial metrics, including return on assets, asset turnover, and the quick ratio.
In an effort to help the market prepare for the forthcoming introduction of the new lease accounting standards, LeaseAccelerator has ranked the off-balance sheet operating lease obligations of the 1000 largest US public companies to determine who is most impacted by the new lease accounting standards. The largest 1000 were identified using the most recent Fortune 1000 ranking and operating lease obligations were determined using FactSet and supplemented by SEC filings.
The study found that collectively, the top 1000 public companies in the US have almost $1 trillion in operating lease liabilities. Although companies in every industry lease, there is a particularly high concentration of leases in the retail, airlines, and telecommunications sectors. The retail industry will experience the greatest proportional balance sheet change from the new standards as specialty, grocery, and food service chains tend to lease many of their brick and mortar store locations.
For more detail and analysis on who is most impacted by the new lease accounting standards, download the full report above.