Off-balance-sheet operating lease financing is used by many companies to manage spend on IT infrastructure. Many companies use this vehicle, also known as an operating lease, to flatten IT infrastructure spend and minimize risk of asset ownership.
But the leasing rules are changing. The Financial Accounting Standards Board (FASB) and International Accounting Standards Board are eliminating off-balance sheet leases for terms greater than 12 months. For most US public companies, these changes take place starting January 1, 2019. Private companies will be affected by the changes starting January 1, 2020.
Servers, storage, networking equipment, PCs, mobile devices and a few other IT assets will be affected by the changes.
What is the potential impact of these changes on companies that have historically used the operating lease for IT infrastructure?
Since the changes only affect leases that are longer than 12 months, shorter term leases may be more attractive to companies that prefer to keep IT infrastructure off the balance sheet.
Better visibility into true infrastructure costs that an all-capital budget would deliver may reduce the economic motivations to retain applications in-house.
And, cloud computing, infrastructure as a service (IaaS), and software as a service (SaaS) may become more attractive to organizations as an alternative for off-balance-sheet leasing. IT and finance will need to evaluate the impact on opex/capex balance and financial ratios to determine the full impact.
For more information on the FASB changes, refer to document, FASB in Focus, Accounting Standards Update No. 2016-02, Leases. For more information on how cloud infrastructure might be an attractive alternative to operating leases, contact me.
Doug Theis is the Director of Market Strategy in Expedient’s Indianapolis market focused on engaging with and improving the regional IT community through planning, sponsoring and attending community events, facilitating IT-focused continuing education opportunities, and sharing strategies, tactics, and research to help IT professionals stay abreast of best practices and industry trends. Connect with Doug at firstname.lastname@example.org and follow him on Twitter.