By constructing leases as operating rather than capital leases, not only were firms able to hide billions of liabilities, but they were also able to improve their retained earnings, net income, debt/equity, and return on assets remarkably. In addition, synthetic leases can be structured for significant tax savings. As long as the FASB continues to embrace the 29-year-old rule-based lease standards such as SFAS 13 for lease treatments, companies can and will continue to exploit these standards to hide liabilities as well as to report improved financial numbers and ratios.
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