Myth: Rules Will Cause an Increase in Debt



George Azih:

Another myth under the new lease accounting rules for 842 is that the new rules will cause an increase in debt. This is a huge misconception out there. Now, 842 will indeed cause an increase to your liabilities, however, those liabilities are not deemed debt. So, even though your liabilities will increase under 842, those liabilities that are resulting from these operating leases that go on your books, will not be deemed debt. Once again, this another different between the GAAP and the IFRS. Under IFRS, those liabilities will indeed be called debt. So for GAAP, the new rules will not cause an increase in debt, but for IFRS, it will.