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By Steven Marcy
Companies should think carefully about why and what they lease before trying to figure out how to comply with the new lease accounting standard that takes effect for public entities next Jan. 1.
Accounting departments should ask their company’s top officers to explain the strategic reasons for a leasing policy. This process will help the accounting department and chief financial officers better understand how to comply with the new leasing rule, panelists told a May 17 conference sponsored by Deloitte LLP and Bloomberg Tax on the challenges of adoption.
“Get your executives to be clear about why you lease and it will actually help you think about that future state” of leasing under the new rule, Reston, Va.,-based LeaseAccelerator Inc. CEO Michael Keeler told the conference. Getting clarity from top management about their leasing strategy will “help you manage the project” for complying with the new rule.
Companies tend to make leasing decisions based on whether leasing or ownership is the best way to maximize cash flow, Keeler said. That can require a decision whether “to put your money in appreciating assets rather than depreciating assets.”
“Start with the strategy” of the company, Keeler urged.
David Samuels, CFO of DrFirst Inc. in Rockville, Md., said that decisions about how and when to “refresh” technology and equipment probably will play a big role in how companies make leasing decisions. The new standard and how complex it will be to apply probably will influence whether to lease the equipment or employ a credit financing arrangement, he said.
Keeler and Samuels also suggested the new leasing standard might spur more leasing, not less, especially among those who launched their preparations early for the new standard.
They said that the early preparation can give companies a much greater sense of control over and knowledge of how leases actually affect company performance, making leaders of these companies more comfortable in making leasing decisions.
This deeper understanding of a lease’s potential impact gained from the early preparation can make executives more confident to lease an asset. It helps remove the dread that they might be over paying for the economic value of the asset, Keeler and Samuels said.
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