There’s been an ongoing row about changes in lease accounting. Big players in the leasing industry (think GE) have been fighting the changes tooth-and-nail. This article had some interesting data on the consequences of the new accounting rules.
Consulting firm Chang & Adams found that proposed standards for lease accounting will result in an increase in total reported debt liabilities of $1.5 trillion; increased costs of $10.2 billion annually; job losses of over 190,000; and a lowered GDP of $27.5 billion annually.
$1.5 trillion is a hell of a lot of money to suddenly appear on the balance sheet of these lessors, for that reason alone I expect that the new rules will be watered down. No one wants to see another $1.5T of debt exposed those days. From the C&A report:
Essentially, the standards will require tenants to place leases on their balance sheets—an enormous line item that consists of anything from office, business and farm machinery to, yes, real estate.
But really, it’s there. I can’t imagine how the accounting rules can bury this debt. I’m amazed there a is even any debate, after all we've been through. The conclusion that it could cost 190k jobs and $28b annually might be correct. I would like to see a different report. What is the cost (in both jobs and money) of allowing phony accounting to persist? A few years ago we were measuring this in the Trillions. We still are.
This article originally appeared at My Take On Financial Events. Copyright 2012.