This new lease accounting standard is the most significant accounting change in more than a decade, and it is coming very soon. Corporate balance sheets of the most sophisticated top 1000 US companies will see the most significant impact.
When first announced, it was believed that due to the significant change in accounting requirements, millions of jobs could be lost in various leasing industries as corporations shift away from leasing towards purchasing assets. The most vocal objections seemed to come from lobbying organizations. However, it appears to be quite the contrary. Recent statistics show that such indicators as equipment finance volumes in the US, the Dow Jones Industries Average and NASDAQ stock market indices are reaching record highs, rising since the February 2016 publication of the standard.
While the intended purpose of the new lease accounting standard is to provide greater transparency regarding leasing arrangements, moving leases onto the balance sheet can also foster better business decisions. Although companies in every business sector lease, there is an unusually high concentration of leases in the telecommunications, the airline industry, and in retail with brick and mortar stores.
What do companies lease? Companies lease rather than buy many of the assets they use to run their businesses. Typically, the most significant dollar value of large corporate leases is in their real estate portfolios.
- Factories to build products
- Warehouse to store inventory
- Retail stores used to sell merchandise
- Call centers used to provide customer support
- Data Centers used to house IT applications
- Office buildings used to house administrative offices
Companies lease a vast and diverse portfolio of other assets, and they are referred to as equipment leases:
- Trucks, forklifts, computers, barges, aircraft, pallet jacks, conveyors
- Laptops, tablets, printers, photocopiers
- Servers, storage devices, networking equipment
Why would leasing increase? An example might be airlines who are heavily dependent on leasing. They not only lease space within terminals for gates and baggage handling, but they can lease the majority of their aircraft that transport their passengers. Healthcare is another industry heavily dependent on leasing. A Fortune 500 healthcare company may manage as many as 2,400 outpatient centers within the US requiring a greater emphasis on the management of their real estate lease portfolio. What can lease accounting software provide? The right lease accounting software solution can provide the platform to test various leasing scenarios without every disturbing your live data. Powerful information customized to your exact specification can prevent mistakes and support better business decisions. CoStar offers the lease accounting software-as-a-service (SaaS) for Enterprise Lease Accounting proven to be the safest, most straightforward, fastest, and the most accessible path to compliance with the new standards. The first step to success is to partner with a reliable third party with experience and a proven track record of dealing with implementations on the scale of a Fortune 1000 company.