Snap Inc. (SNAP) is understating its future lease liabilities, offering investors an incomplete picture of its future financial obligations. In its latest 10-Q, Snap says it has more than $60.1 million in future undiscounted operating lease liabilities. This understates Snap’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:

“...we have additional operating leases for facilities that have not yet commenced with lease obligations of $60.1 million.”

The leases commence between 2022-24.

On an undiscounted basis, Snap’s not yet commenced leases are 10.5% of the company’s total future lease obligations and 1.1% 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 Snap 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)...”