Under the whole asset approach to accounting for leases, the fair value of the asset would be capitalized in the lessee’s books, effectively eliminating any off balance sheet financing at all. The ‘right to use’ approach, however, depending on the model adopted, may still retain some off balance sheet features. Under one ‘right to use’ model, the lessee’s obligation to pay would be put on the balance sheet, along with the fair value of any purchase option, potentially putting the entire asset on the books (along with creating a derivative accounting nightmare for our industry).
Fortunately, it looks like the direction the debate is heading is to adopt what is, essentially, capital lease accounting for most leases (note the “most” comment). Under this ‘right to use’ model, the residual would still remain off the balance sheet, which, for some collateral types such as aircraft, can be significant. There also has been some discussion of exempting true usage leases, such as computers, power per seat, click contracts, etc., and, of course, the perennial favorite, small ticket leases. I can see it now – that $50 million deal you were working on? Well, it now has 5,000 schedules.
