JCP - Misleading Operating Lease Discount Rates Obscure Reported Results

A new accounting rule added nearly $3 trillion to corporate balance sheets in Q1. Operating lease obligations, formerly buried in the footnotes, must now be reported as a liability – and corresponding right of use asset – on the balance sheet.

We applaud the FASB for removing the loophole that allowed companies to hide trillions of dollars in capital off the balance sheet. However, the new rule is not perfect. Corporate management have significant discretion in how they disclose operating lease obligations on the balance sheet. Specifically, management can choose the discount rate used