WMK - Operating Leases Revisited: The New Accounting Rule Still Makes Valuation Adjustments Necessary
Image by Andriy Blokhin
In 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02 that requires businesses to recognize operating lease assets and liabilities on their balance sheets. The new standard applies to leases with terms above 12 months. However, even with this new standard, investors should still make valuation adjustments for operating leases. Here is why.
Lease Expense Classification
Companies can lease assets through two arrangements: a capital lease (now called a finance lease) and operating lease. In 2017, I wrote an article explaining the accounting behind leases. In a nutshell, operating leases