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Credit Suisse HOLT Sector Specialist Co-op Interview Question (student candidate)

I interviewed in Chicago, IL and was asked:
"2 firms w/ the same financial results save for the fact that one uses operating leases and the other financing leases - does this impact the integrity of the financial reporting? How, if at all?"
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Answer

Part of a HOLT Sector Specialist Co-op Interview Review - one of 486 Credit Suisse Interview Reviews

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Firm 1 (op lease): will have arbitrarily increased ROA, distorting the return generated from the operating asset base because the expenditure is an "off-B/S" item per US GAAP; it needs to be capitalized to rectify the distortion.

Firm 2 (financing lease): will have a more accurate ROA but is disadvantaged from the perspective of prospective investors in comparison to Firm 1, due solely to arbitrary GAAP acct method selected my management.

- Interview Candidate on Dec 5, 2013

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