FASB Rules vs Balance Sheet
How CIOs and CFOs Keep IT Infrastructure Off the Balance Sheet
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How CIOs and CFOs Keep IT Infrastructure Off the Balance Sheet
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The impact of the new accounting guidelines surrounding operating leases is reverberating through every industry. CFOs know that there will be a material impact to the balance sheet as operating leases are now considered assets, thus affecting the Return on Assets ratio and liquidity.
Fortunately, IT infrastructure leases can be converted to a Consumption Based Finance (CBF) model where they are treated like a utility with variable use and payment terms. Under a service agreement, companies only pay for what their workloads use in the CBF model. This keeps IT infrastructure off the balance sheet and noted as an expense while also reducing operating expenditures (opex) by eliminating payments for unused IT infrastructure.
This white paper provides essential information to CFOs and CIOs on how to convert IT infrastructure leases to a CBF (utility) model.
The 100 US companies with the largest dollar value of leasing obligations recently reported the material impact to their balance sheets due to ASC 842. 76% of them reported that there will be a material impact resulting from the transfer of most right-of-use assets and liabilities on the corporate balance sheet. Another 20% are still analyzing the potential impacts of the new standard. Only 8% provided quantitative estimates of the material impact to the balance sheet, which ranged from $1.2 billion to $13 billion.
IT infrastructure is a subset of these enormous corporate leasing obligations and can be converted to a CBF (utility) model for companies who wish to limit the impact of ASC 842 on their balance sheet, while also lowering opex across the data center. Figure 4 summarizes the current state of operating leases and the two options of either maintaining the status quo beginning in 2019 and reporting the leases on the balance sheet or moving to a CBF (utility) model with 6fusion and Winthrop.
With 6fusion metering software and the CBF (utility) model, CIOs also gain the flexibility and scalability found with cloud solutions, but now gained for on-premises needs related to security, control and compliance. 6fusion past projects include converged, hyper-converged, storage and servers across a data center.