Intuit Stashes $166 Million Liability Off-Balance Sheet
Software firm uses an accounting loophole to make its balance sheet appear stronger than it is.
March 3, 2022
Intuit (INTU), a small business software maker, is understating its future lease liabilities— and total liabilities— offering investors an incomplete picture of its future financial obligations. In its latest 10-Q, the company says it has more than $505 million in discounted future operating lease liabilities. This understates Intuit’s true liability since the company doesn’t count leases not yet commenced— even though the lease in question commences in 2022:
“As of January 31, 2022, we have an additional operating lease of $166 million for office facilities that has not yet commenced and therefore is not reflected on the consolidated balance sheets nor in the tables above.”
If we use Intuit’s 2.2% discount rate over the 13 year lease term, Intuit’s off-balance sheet discounted operating lease liability is $137.6 million, or 27.2% of the company’s future discounted operating lease liabilities.
It’s also 1.27% of total liabilities.
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 Intuit 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)...”
Intuit isn’t the only company using the loophole to make its balance sheet look stronger. We recently documented billions of dollars in future operating lease liabilities being excluded from corporate balance sheets.
Related: HRB, CRM, ADBE, WDAY, COUP, MANH
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