Be Afraid of New FASB Accounting Standards, Be Very Afraid

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Over the last 14 years, American Tower as a leasor of wireless infrastructure has seen annual total returns of 16.3 percent while the S&P 500 averages a 6.8 percent return, said Fool.com.  So what’s scary about that?

A proposed rule change from the Financial Accounting Standards Board (FASB) has a chance of impacting balance sheets across the board in the tower industry as it stipulates “a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months.”  The ruling fundamentally negates off-balance sheet financing…. a big reason investors choose companies with operating leases, Fool.com said.  

American Tower’s latest quarterly report recognized pending changes:  

 “In February 2016, the FASB issued new guidance on the accounting for leases. The guidance amends the existing accounting standards for lease accounting, including the requirement that lessees recognize assets and liabilities for leases with terms greater than twelve months in the statement of financial position. Under the new guidance, lessor accounting is largely unchanged.This guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. The standard is required to be applied using a modified retrospective approach for all leases existing at, or entered into after, the beginning of the earliest comparative period presented. The Company is evaluating the impact this standard will have on its financial statements,” the ATC report said.

“AT&T downplayed the rule change by noting the company already discloses its operating-lease obligations in its financial-statement footnotes, and calls it a ‘presentation change’ only. However, it appears AT&T is less upbeat when not addressing an investor-focused news outlet; the company has criticized the FASB’s move in public comment. The Chamber of Commerce, long noted as the unvarnished mouthpiece of affected executives, published a study suggesting the change would lead to “major job losses,” Fool.com said.

While the new standards give cause for concern they are still two years away for publically traded companies, three years for others. The FASB stated the rule on leases “will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other organizations, the ASU (Accounting Standards Update) on leases will take effect for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.”

As Fool.com pointed out, there is the potential for a major disruption to the business model of American Tower and other towercos and but the two-years-from-now deadline allows them to adjust their bookkeeping plans accordingly.

October 31, 2016

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