“Mandates will make hefty amounts of rent expenses disappear”

Sounds nice, doesn’t it?  Too bad it’s really a sensational headline*.  CFO.com surprised me today with an article about the proposed FASB/IASB accounting rule that would promote operating lease expenses to capital lease expenses.  From an accounting perspective, this means that they would now be included on the balance sheet.  According to a Georgia Tech study referenced in the article, this would have a net positive effect on EBITDA (earnings before interest, taxes, depreciation and amortization), because rent expenses would now appear as interest and amortization, not included in the EBITDA calculation.  Despite the impacts that this would have on perceived business performance and investor sentiment**, my big concern is with the wording of my selected quote.

Rent expenses will not actually disappear and I pity anyone naive enough to think so.  I’m shocked that CFO.com, a news source that I have come to respect and rely on for high quality, no nonsense reporting, has allowed misleading wording like this to make its way into an article.  However, I do not want to come off as a curmudgeon, so check out the full article about amending FAS 13 and let me know what you think, as it relates to the world of commercial real estate leasing.

* the quote is technically the “sub-headline”
** at least among the GAAP-challenged


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