It looks like Congress is getting involved in the Lease Accounting debate. This can only end well right?
As background, the most famous intervention of Congress into accounting standards was back in the 1990s when the FASB tried to require the expensing of stock options. Many companies were issuing options to anybody and everybody that walked through the door (and I guess Facebook still does) and the FASB correctly argued that those options have a value and should be expensed. But the tech companies threatened Congress, who then intervened and shot down the proposal, forcing the FASB to relegate stock option expense information off the income statement and into the disclosures. Then the tech bubble hit, companies went under, accounting rules got blamed (by Congress....hypocrites), and now stock option are expensed on the income statement.
Now the FASB is trying to put leases on the balance sheet as debt. Leases are debt and everyone knows it. Analysts estimate lease payments and put them into their ratios as debt. Banks do the same. The only issue is they don't have the information to make an accurate estimate, so the FASB is trying to change the rules to eliminate the off balance sheet nature of leases. And again Congress is getting involved....idiots.
Here's a silly comment in the article:
So putting leases on the balance sheet will cause credit ratings to fall??? That makes no sense because the company did not change one contract and now they are more risky???
Seriously Congress, stick to what you do best, which is spending money you don't have.
As background, the most famous intervention of Congress into accounting standards was back in the 1990s when the FASB tried to require the expensing of stock options. Many companies were issuing options to anybody and everybody that walked through the door (and I guess Facebook still does) and the FASB correctly argued that those options have a value and should be expensed. But the tech companies threatened Congress, who then intervened and shot down the proposal, forcing the FASB to relegate stock option expense information off the income statement and into the disclosures. Then the tech bubble hit, companies went under, accounting rules got blamed (by Congress....hypocrites), and now stock option are expensed on the income statement.
Now the FASB is trying to put leases on the balance sheet as debt. Leases are debt and everyone knows it. Analysts estimate lease payments and put them into their ratios as debt. Banks do the same. The only issue is they don't have the information to make an accurate estimate, so the FASB is trying to change the rules to eliminate the off balance sheet nature of leases. And again Congress is getting involved....idiots.
Here's a silly comment in the article:
“Investor protection and financial disclosure are always paramount,” said Sherman. “However, forcing companies to capitalize the full value of their leases will explode many companies’ balance sheets overnight, especially small businesses, who already book their leases as an expense on financial statements. Capitalizing these leases will throw off debt-to-capital ratios, ruin credit ratings and force many companies to pay higher interest rates. As a result, most companies will naturally try to reduce the size of their leases by shortening leasing terms, which will increase costs for real estate owners and managers forced to renegotiate complex leases every six or eight months.”
Seriously Congress, stick to what you do best, which is spending money you don't have.