General Motors (GM) is understating its future lease liabilities, offering investors an incomplete picture of its future financial obligations. In its latest 10-K, GM says it has more than $1.37 billion in future undiscounted operating lease liabilities. This understates GM’s true liability since the company doesn’t count leases not yet commenced. The exclusion— which is buried in the footnotes— understates the company’s future liabilities:

“Lease agreements that have not yet commenced were $215 million at December 31, 2021.”

On an undiscounted basis, GM’s $215 million in not yet commenced leases are 15.6% of the company’s total future lease obligations.

Under an accounting loophole, companies can omit from the balance sheet leases that haven’t started as well as corporate offices under construction or build-to-suit arrangements. It’s seemingly inconsistent with FASB’s guidance on the topic which states if a lease is legally binding— as GM acknowledges— Topic 842 (ASU 2016-02) makes clear it must be accounted for on the balance sheet:

“A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability)...”