Management and Finances

New Accounting Standards Mean New IT Leasing Rules

By Stephanie Overby

New reporting rules could make IT equipment leasing less attractive, but lessors may be more amenable to meet client demands or offer new value-added services to win over customers. Read on to get the whole story and to see how it may affect your IT department’s strategy.

Stephanie Overby writes, “The Financial Accounting Standards Board’s new lease accounting standards announced earlier this year will require public companies to recognize assets and liabilities from operating leases on their balance sheets for fiscal years beginning after December 15, 2018.

“The changes—a response to a growing need to provide more transparency to off-balance sheet leasing obligations, estimated at some $1.2 trillion dollars—will impact not just accounting policies but lease vs. buy decisions within IT organizations whose companies will have to comply with the new standard.

“Before the new rule, only capital leases were required to be reported on balance sheets. Looking ahead, all leases must be recorded as liabilities. As a result, says Steven Kirz, managing director with business transformation and outsourcing advisory firm Pace Harmon, ‘companies that were attracted to leasing in order to keep significant assets off the balance sheet may be less interested in leasing in the future.’

“It’s just the latest shakeup in the IT equipment leasing industry which has also been reeling from reductions in the cost of IT equipment and increased adoption of cloud computing. ‘The profits of the companies that lease IT equipment are under pressure,’ Kirz says. ‘At the same time, cloud adoption is shifting lessor relationships from the end-client to the cloud provider, and many cloud providers are building their own data centers with commodity equipment, thus shrinking the lessors’ market size.’”

Read the full article.