New Lease Accounting Standard May Mislead Investors, Credit Suisse Says
New Lease Accounting Standard May Mislead Investors, Credit Suisse Says
New Lease Accounting Standard May Mislead Investors, Credit Suisse Says
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https://www.wsj.com/articles/new-lease-accounting-standard-may-mislead-investors-credit-suisse-says-11562800479
CFO JOURNAL
New lease accounting rules have resulted in potentially misleading data feeds,
inconsistent inancial reporting and other discrepancies that could confuse and
misinform investors, Credit Suisse Group analysts said in a report
PHOTO: JEENAH MOON BLOOMBERG NEWS
By Mark Maurer
July 10, 2019 7 14 pm ET
New lease accounting rules have resulted in potentially misleading data feeds,
inconsistent financial reporting and other discrepancies that could confuse and
misinform investors, Credit Suisse Group analysts said in one of the more detailed
industry warnings from an investment bank since the standard took effect for
public companies late last year.
“Any change of this size can be disruptive,” Mr. Graziano said. “The real problem is
that this impacts [metrics such as] the return on invested capital and leverage,
and it can cause large distortions in the
market.”
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At issue is whether operating leases are
CFO Journal automatically included in key financial
metrics by data providers, and whether
The Morning Ledger provides daily news and
insights on corporate finance from the CFO investors are aware that their data feeds
Journal team. have made these adjustments, Mr.
Graziano said.
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To comply with the new standard, data vendors have been forced to change how
financial-statement line items such as debt; property, plant and equipment, or
PP&E; and earnings before interest, taxes, depreciation and amortization, or
Ebitda, are presented, according to the report. But without clarity on how the new
standard impacted the calculation of specific metrics by each data vendor,
investors can inadvertently transpose this information into their screens and
financial models without making their own adjustments, leading to distortions.
For example, the report said, some data providers classified newly created
operating lease right-of-use assets as PP&E. Credit Suisse questioned the
economics behind that decision and said it could conflict with how companies
report it on the balance sheet.
The FASB’s new lease accounting standard will be effective for private companies
for fiscal years beginning after Dec. 15, 2019. The standard became effective for
public companies for fiscal years starting after Dec. 15, 2018.
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