By Mike Quimby, Senior Vice President & General Manager, Element Fleet Management
If you’re a fleet manager, chances are you’re aware that the Financial Accounting Standards Board (FASB) is moving forward with a new standard requiring companies and organizations to include lease obligations on their balance sheets.
“We believe that this new standard is important because it will provide investors, lenders and other users of financial statements a more accurate picture of the long-term financial obligations of the companies to which they provide capital,” said FASB Chairman Russell G. Golden in a press release.
There are two popular types of fleet leases, open-end and closed-end leases. Historically, businesses and organizations have used operating leases to keep assets off of their balance sheets, effectively treating lease payments as a rental expense. This is commonly referred to as the risk and reward method, as the lessor takes on the risks and rewards of asset ownership.
While the rule doesn’t go into effect until 2018, companies need to start thinking about how they will implement the new rules now.