Gartner Research

The Demise of the Operating Lease Requires Close Collaboration to Minimize Transition Risk

Published: 16 June 2016

ID: G00302829

Analyst(s): Rob Schafer

Summary

The recently announced FASB and IASB lease accounting standards will eliminate off-balance-sheet operating lease financing by YE18 for terms greater than 12 months. Technology procurement leaders must collaborate closely with finance and IT to evaluate and manage the material impact.

Table Of Contents
  • Impacts

Analysis

Impacts and Recommendations

  • The demise of off-balance-sheet operating leases means that, for IT and technology procurement leaders, cloud computing and SaaS will grow more attractive as off-balance-sheet replacements for operating lease financing of IT infrastructure
  • IT and procurement executives should be aware that the shift to capital assets is likely to lengthen the relatively short refresh cycles associated with operating leases, and drive higher asset disposition costs for older equipment
  • Although the operating lease's off-balance-sheet accounting benefit will be eliminated by YE18, finance and procurement leaders must understand that the residual value benefits of FMV financing will remain for shorter-term leases, requiring a revised "lease versus buy" strategy

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