At the end of February, the Financial Accounting Standards Board released a new rule that will require companies to report operating leases on the balance sheet. The rule will affect all leases that are longer than one year – everything from real estate to vehicles to office equipment. But for most companies, real estate is where the dollars are. Some of those real estate leases are for data centers, which tend to be much higher value per square foot than other real estate. A growing percentage of organizations colocate their data center, which almost always means a 5, 10, or even 15-year lease agreement.
There's a Silver Lining - when it comes to the data center accounting rules, a wide range of factors, many of which are not financial, influences the build v. buy decision. The new lease accounting rules could affect that decision-making, perhaps tipping the scales back in favor of owned data centers for some companies. But in most cases, companies that would have colocated (i.e., leased) their data center will continue to do so. What the new rule does is bring into focus the importance of doing what KPMG’s Kimber Bascom and Dean Bell recommend in CFO and “analyze existing contracts and make the best use of new lease agreements.”
Here are two of the critical questions addressed in this paper:
1. What Is The Initial Lease Obligation I Have To Book On The Balance Sheet?
2. How Can I Mitigate Both The Risk Of Future Capacity Constraint And The Risk Of Over-Provisioning?
To find out more about the new data center accounting rules download this report.