Credit Suisse Analysis Warns of Investor Confusion From Lease Standard

By:
Chris Gaetano
Published Date:
Jul 11, 2019
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Credit Suisse warned that the Financial Accounting Standards Board's new lease rules, which moves all lease obligations from the notes to the balance sheet, may confuse investors due to inconsistent reporting and misleading data feeds, according to the Wall Street Journal

The standard promises to have a huge impact. For instance, a Bloomberg story said that CVS expects the standard will mean having to bring $21 billion in lease obligations onto its balance sheet, which will be recorded as debt (counter-balanced by a 'right-to-use' asset). Data vendors used by investors have already changed how financial statement line items are presented in order to comply with the new standard, but there's little clarify on how these calculations have been changed, and further different vendors might recalculate in different ways. For example, while some classify the right-to-use asset as property, plant and equipment, others do not. Regardless, this data then feeds directly into things like analysts' models, which can lead to distortions and inconsistencies. 

Last month, FASB chair Russell Golden acknowledged that data and technology represent a challenge to implementation. Since the standard was first approved in 2016, polling has found companies consistently unprepared for its implementation year after year. Even as recently as this past April, a Deloitte poll found that 30.6 percent of C-Suite executives thought they were only somewhat prepared, and 6.9 percent said they weren't ready at all. One of the major challenges cited in polls has been the need to update software to account for the new rules. In a 2017 Deloitte survey IT-related challenges dominated implementation hurdles, with 34.4 percent saying their prime challenge was "collecting necessary data on all organizational leases in a centralized, electronic inventory," and 10.8 percent citing "IT system upgrades." 

Golden said that while technology has allowed more access to information in the marketplace, he noted that the slow speed at which software providers have been updating their systems could indicate a growing gulf between when a new standard is approved and its effective date. 

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