S&P 500 cos. report $503B in lease liabilities under new standard

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Nearly 400 S&P 500 companies have transitioned to the new lease accounting standard within the first six months of the initial effective date for public companies, and together the companies reported a total of $503 billion in operating lease liabilities and $69 billion in finance lease liabilities, according to a new analysis.

The study, from lease accounting software provider LeaseAccelerator, analyzed the interim financial reports (SEC Form 10-Q filings) issued between Jan. 1 and June 14, 2019 of 395 S&P 500 companies. It found that six companies were early adopters of the lease standard, also known as ASC 842, adopting it before Dec. 15, 2018, while 389 transitioned on the effective date and 105 plan to transition later in 2019. Four of the companies adopted the standards in the fourth quarter of their fiscal 2018.

The study also found that 190 companies added new line items on their balance sheet as one or more of the following line item descriptions: ROU Assets, Current Operating Lease Liabilities and/or Long-term Operating Lease Liabilities. Meanwhile, 90 percent of the 395 companies (or 354) that have adopted the standard included a separate “Leasing” footnote that contained the required new disclosures such as discount rate and lease term. The remainder were either not material or included required disclosures in another footnote such as the Policies footnote.

The operating lease liabilities represented 11 percent of total debt (excluding the financial sector) as of the most recent interim Form 10-Q period. The liabilities also represented 10 percent of total equity (excluding the financial sector) as of their most recent interim Form 10-Q period.

The mean of the weighted-average remaining lease term for operating leases was 10.4 years, according to the study, while the median was 7.7 years. The mean of the weighted-average discount rate was 4.2 percent, while the median was 4.0 percent.

“The transition to what many experts consider to be the biggest accounting change ever is a significant accomplishment for the industry,” said LeaseAccelerator CEO Michael Keeler in a statement. “ASC 842 has been a massive project at most companies with thousands of hours invested to collect data, deploy systems, and design processes and controls.”

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Accounting standards S&P 500 Financial reporting