LAST YEAR, the International Accounting Standards Board issued new leasing standards that its U.S. counterparts will implement on January 1, 2019. There’s no need for companies to panic since these changes will affect businesses’ accounting practices more than their taxing procedures, but IT providers still need to familiarize themselves and their clients with these updates and how they will impact equipment and property financing.
According to Kelly Carter, executive director of Irvine, Calif.-based Ingram Micro Inc.’s financial services unit, the new rules will phase in over two years. “For public companies, any lease longer than 12 months must be capitalized on the balance sheet in 2019, including fair market value structures,” she says. “All other businesses must make that change in 2020.”
Why update standards? “These rule changes are meant to put off-balance sheet items back on the balance sheet, to show what companies are actually obligated to pay out over several years,” says Greg VanDeWalker, senior vice president of IT channel and services for GreatAmerica Financial Services Corp., of Cedar Rapids, Iowa. While that change may seem minor, lending institutions know some organizations have avoided listing certain liabilities on their balance sheets and have requested more accurate reporting standards.
“Today it’s easy for a customer to pay ‘x’ dollars for services while the project and hardware details are hidden,” explains VanDeWalker. The rule changes make that harder by turning hardware and services into separate line items. The new standard is expected to increase the “potential for haggling, which could have an impact on partners and leasing customers,” VanDeWalker says.
Partners who sell to publicly traded enterprises will be affected most by the rule changes, experts say, but those servicing smaller companies will need to make some changes to their documentation: They will have to break out all hardware and services as separate line items.
That Capex versus Opex conversations often take place late in the sales process should also concern IT providers, according to Carter. “It’s more critical than ever to get connected to the financial decision maker as early as possible to understand [his or her] objectives and identify potential hurdles,” she says, adding that channel companies should start discussing new financing options with banks well before these new rules take effect.
Fortunately, the new rules are not expected to affect channel margins. In fact, IT firms that do their homework on the new standards now will likely find themselves in a stronger competitive position later.