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Balance Sheet Liabilities Jumped After Lease Accounting Change

Article commentary by: Jay Miele, Senior Managing Director, Global Healthcare Services

A recent article in Accounting Today highlighted the magnitude of balance sheet impact that the lease accounting changes (codified in ASC 842) are having on companies’ balance sheets. Chief among the myriad of changes is the capitalization of operating leases longer than one year on the balance sheet as lease liabilities. Previously, only finance leases (formerly termed capital leases) were reflected on the balance sheet. In the healthcare industry, the average lease liability increased 1,817% as a result of the change. This impact, together with the complicated and arduous implementation process of identifying and recognizing leases, are leading healthcare providers to revisit their own vs. lease decision tree for real estate and equipment, as well as consider alternative financing strategies.

Article written by: Michael Cohn, Accounting Today, February 18, 2020

The new lease accounting standard caused lease liabilities for the average company to increase a whopping 1,475 percent, skyrocketing from $4.4 million before the transition to $68.9 million post transition, as operating leases were recorded on the balance sheet for the first time, according to a new study... Read the full article here.

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