An Accounting Rule Inflated S&P 500's Q1 Earnings by 12%
An obscure accounting rule change, ASC 842, allowed companies to capitalize operating lease expenses, inflating S&P 500 Q1 earnings by approximately 12%. The rule shifted $69 billion in costs from operating to financing activities, boosting net income on paper without improving actual cash flows. Analysts warn this distorts earnings comparisons and misleads investors about corporate profitability.
Background
- The article claims that a change in US accounting standards (ASU 2023-09, effective for Q1 2025) inflated reported S&P 500 earnings by roughly 12% — about $69 billion — by changing how income tax disclosures are handled, not by changing actual profits.