The Financial Accounting Resource Center™ is a comprehensive research service that provides the full text of standards, the latest news from the Accounting Policy & Practice Report ®,...
Moody’s Investors Service plans to update how lease obligations factor into its credit ratings as public companies prepare to include those costs for the first time on their balance sheets next year under new accounting rules.
Moody’s released this week the proposed changes to its lease methodology for feedback from stakeholders.
The change in the accounting standard will require companies to list operating lease liabilities on the balance sheet for the first time—and for some companies that could total billions. The goal is to give investors more accurate information about a company’s lease obligations.
Under the proposal, Moody’s would rely on the lease liability calculation provided by companies, rather than its own estimate.
“The new accounting will be a much better estimate than what we can come up with today,” said Kevyn Dillow, vice president and senior accounting analyst with Moody’s based in New York.
The ratings agency currently relies on the footnotes in the financial report to gauge how much a company might owe in leases and ultimately how that might affect the company’s ability to borrow or repay credit, Dillow said.
“The accounting is catching up to the way that we have been viewing leases,” she said. “There will be a more consistent view of the lease obligation.”
Moody’s will adjust the new figures to balance out the differences between U.S. and international accounting standards, she said. The differences are mostly minor, but the U.S. standard distinguishes between finance and operating leases while leases under International Financial Reporting Standard 16 use a single lease-accounting model.
The new accounting standard isn’t expected to have much effect on ratings because the underlying economics of a company isn’t changing, Dillow said.
S&P Global Ratings declined to comment on whether its methodology might change. However, in documents previously released by the ratings agency, the new standard was expected to generally matchup with the agency’s formula and that it would use the new lease liability figures in its analysis.
Fitch Ratings told Bloomberg Tax that the agency uses annual rent expenses included in financial statements to determine debt adjustments. “As such, changes to lease accounting rules shouldn’t have a material impact on Fitch’s adjustments,” the company said in an email statement.
To contact the reporter on this story: Amanda Iacone in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: S. Ali Sartipzadeh at email@example.com
Copyright © 2018 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)