INVEST AND RISE

In 2019, accounting rules regarding treatment of operating leases were changed. Under old accounting operating leases were expensed. As per new accounting, operating leases have finally found the place where they long belonged, the balance sheet. Retail, restaurants, airlines, logistics and telecom companies have significant operating lease obligations. With lease liabilities becoming visible as debt (and counter right-of-use asset in the balance sheet), does it change the risk perception of equity investors? While the new accounting treatment has been covered by myriad articles, in this blog, after briefly touching upon (the similarity and difference between) US GAAP and IFRS treatment of operating leases, I focus primarily on addressing equity investor risk perception, which is communicated by expected return. A significant increase in expected return implies that investor perception of risk has amplified since investors want to be compensated for bearing higher risk. In this blog, I..

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