Earlier this year, the Financial Accounting Standards Board voted to require companies to add to their balance sheet most of the leases they use. This rule, one among hundreds, could swell balance sheets by as much as $2 trillion and make companies, such as airlines that lease planes and retail or restaurant chains that lease real estate, look far more leveraged than they do now.
The new rule capitalizes leases on the balance sheet, when current footnote disclosure on future lease payments provides essentially the same information. According to FASB, putting leases on the balance sheet is expected to make it easier for the average investor to see the effect they have on a company’s finances. But is that really true?
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