Discount Rate Challenges Dog Public Company Lease Accounting

The major accounting change that put billions of dollars of rented storefronts, bullzdozers, forklifts, and photocopiers on company balance sheets for the first time had a hurdle that most public companies didn’t expect: math.

The new accounting rule, in force for public companies the first quarter of 2019, requires businesses to shed light on their lease liabilities by putting them front and center on their balance sheets. To calculate the present value, companies have to multiply the cost of all their rentals with an interest rate that reflects the cost of borrowing their next dollar.

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