U.S. FASB accounting changes to add US$1 trillion of balance sheet debt: Moody’s

first_img Share this article and your comments with peers on social media Related news James Langton Thematic funds thrived during pandemic, but watch long-term performance: report A change in U.S. accounting rules will result in roughly US$1 trillion in reported debt being added to corporate balance sheets, according to new report Moody’s Investors Service. In a report published on Friday, the New York City-based credit rating agency says that the U.S. Financial Accounting Standards Board’s (FASB) new accounting standard that requires companies to recognize operating leases on the balance sheet will increase reported debt by about US$1 trillion for the companies it rates. Lease debt will increase by over 50% in some sectors, the Moody’s report says. Most affected will be the retail business, restaurants, and airlines. The apparel, telecom & cable and energy sectors, will also be “materially affected” by the change, the report says. “It’s important to emphasize that these accounting changes do not reflect a change to the actual economics of a transaction,” says Kevyn Dillow, vice president, senior accounting analyst at Moody’s. Moody’s does not expect any rating changes as a result of the new accounting rule, as it has “long considered the impact lease obligations have on debt capacity,” the report says. Nor does the credit rating agency plan to change its approach for analyzing the impact of operating leases. “It is too early to tell whether adoption of the new lease accounting standard will lead us to reassess our approach. Until companies disclose in detail the effect of adopting this standard, the magnitude of these differences will not be clear,” says Dillow.center_img Keywords Investment research Do investors understand their fees, portfolios? Canadian DB plans returned 9.2% in 2020: report Facebook LinkedIn Twitterlast_img read more