Walgreens, CVS and AT&T lead the list of U.S. companies with the most operating lease debt that will need to be added to their balance sheets under the new rental standard, according to a new report that ranks Fortune companies 1000 depending on their rental obligations.
The report, from LeaseAccelerator, a provider of rental accounting software, found that Walgreens Boots Alliance, with $ 32.811 billion in operating lease liabilities, was in first place, followed by CVS Health, with $ 27.151 billion in second place. , and AT&T, with $ 25.928 billion in third. place. They were followed by Amazon ($ 22.848 billion), Verizon Communications ($ 20.734 billion), FedEx ($ 17.874 billion), United Continental Holdings ($ 16.251 billion), Delta Air Lines ($ 16.236 billion), Walmart ($ 15.366 billion) and Bank of America ($ 14.5 billion). billion), completing the top 10.
The rental accounting standard, also known as ASC 842 under US GAAP and IFRS 16 under International Financial Reporting Standards, differs somewhat in the US and international versions, despite years convergence work by the Financial Accounting Standards Board and the International Accounting Standards Board. However, both versions of the standard will add operating leases to the balance sheets of many companies for the first time. The standard comes into effect at the end of the year for public enterprises.
The new standard will require US state-owned companies to transfer approximately $ 3 trillion in operating leases to corporate balance sheets as right-of-use assets and corresponding lease debt. Previously, only a limited set of information on operating leases was shown in the footnotes of documents filed with the SEC. However, under the new ASC 842 and IFRS 16 standards, companies will be required to add new balance sheet items for these operating leases. This means that some of the key financial metrics, including return on assets, asset turnover and quick ratio, will be affected by the accounting changes.
Collectively, the top 1,000 public companies in the United States will total $ 983 billion in operating lease debt, according to the LeaseAccelerator report. While companies in almost every industry have leases, there is a particularly high concentration of leases in the retail, airline and telecommunications industries. The retail industry is expected to experience the biggest proportional balance sheet change from the new standards as it is common to lease stores. Many companies are still trying to prepare for the new rental standard, and private companies will have an extra year to do so, but LeaseAccelerator is encouraging companies to upgrade.
“With less than six months to go before the initial deadlines for the new lease accounting standards, CFOs need to start developing strategies to communicate these balance sheet changes to their investor communities,” said LeaseAccelerator CEO , Michael Keeler, in a statement. “We hope this report will help companies understand and compare the level of impact they will experience from ASC 842 against their peer group.”