The Financial Accounting Standards Board early next year is expected to publish a new accounting standard for leasing, which will have implications for distributors, managed service providers and other channel partners.
The FASB lease accounting standard, a decade in the making, will require businesses to include their lease obligations on their balance sheets. Previously, companies handled leases, for the most part, on an off-balance sheet basis. The Securities and Exchange Commission (SEC) in 2005 tasked FASB to develop a revised leasing standard, with the goal of illuminating companies’ assets and liabilities with respect to leased equipment.
“Because of the prevalence of leasing, it is important for users of financial statements to have a complete and understandable picture of an organization’s leasing activities,” according to FASB. “The SEC staff … identified leasing as a form of off-balance sheet accounting that needed to be addressed.”
The channel impact of the FASB lease accounting standard is already felt among channel partners who deal with IT equipment leasing – distributors, for example. Doug Sobieski, financial services executive for the Americas group at Avnet Technology Solutions, said he spends much of his time these days “talking about how companies are going to address this accounting change.”
Leases, to this point, haven’t been capitalized and are treated as an operating expense (Opex). But Sobieski noted leasing will no longer be an option for companies that prefer Opex. Opex-focused companies will need to figure out different strategies, he said. He suggested many companies that relied on traditional leasing will make a shift to managed services.
Presumably, cloud services could also play a role here, as another way to obtain the value of IT without owning the asset.
FASB voted in Novemberto go ahead with the new accounting rule for leases.
The final Accounting Standards Update is expected to appear as early as January. For public companies, the leasing standard will be effective for fiscal years starting after Dec. 15, 2018, while private companies will see the standard go into effect for annual periods beginning after Dec. 15, 2019, FASB reported.