Now that new lease accounting rules have been approved and will take effect in 2018, the focus is shifting on understanding how the rules will affect businesses. A new infographic from Key Equipment Finance outlines some of the key changes and impacts.
This interactive infographic answers some of the top questions, such as:
- What happens if I capitalize operating leases on my balance sheet?
- Since I'm paid a bonus based on our return on assets (ROA), shouldn't I just borrow to buy?
- If leases appear on my balance sheet, won't I violate debt limitation convenants from other loan contracts?
A bit of background
After a decade of discussion, the two boards that oversee lease accounting approved new rules that will take effect on Dec. 15, 2018, for public companies and on Dec. 15, 2019, for private companies.
The U.S. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) overhauled the rules after much input from equipment finance companies, industry associations and advocacy groups.
There are many good reasons to lease equipment, such as flexibility, little or no cash outlays, and avoiding equipment obsolescence. There also are many different kinds of businesses that can benefit from financing equipment, whether manufacturing, government, technology, healthcare, industrial or energy, to name a few.
While the new lease accounting rules will impact most businesses, the impact will be nominal. Even so, it is advisable to seek out industry expertise and to plan ahead.
To begin that effort, you must be informed on the potential impacts and options, and this new infographic is a great place to start: