For the first time in approximately two years Salesforce (CRM), a maker of customer relationship management software, has managed to reduce certain off-balance sheet liabilities below $1 billion. In the latest quarter, Salesforce disclosed $3.6 billion in future operating lease payments. This understates Salesforce’s true liability since the company doesn’t count leases not yet commenced. The exclusion— which is buried in a footnote— understates the company’s future liabilities:

“As of April 30, 2022, the Company has additional operating leases that have not yet commenced totaling $907 million and therefore not reflected on the condensed consolidated balance sheets and tables above.”

On an undiscounted basis, Salesforce’s $907 million in not yet commenced leases is 24.8% of the company’s total future lease obligations and 2.65% of total liabilities.

The leases will commence between FY23 and FY25 so investors should expect further reductions to Salesforce’s off-balance sheet liabilities barring new leases or the construction of new facilities. Previously, the company excluded $2.4 billion from its balance sheet in the fiscal year ending January 2021 and $1.5 billion in FY22.

Excluding “not yet commenced” leases from the balance sheet is an accounting loophole Salesforce and others are using to hide billions of dollars of liabilities from investors.

Though widely used, this treatment appears inconsistent with FASB’s guidance on the topic. If a lease is legally binding— as Salesforce acknowledges— Topic 842 (ASU 2016-02) makes clear that 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)...”