Lease Accounting Changes: Big Impact/Little Preparation

Lease Accounting Changes: Big Impact/Little Preparation


August 2009

Lease Accounting Changes: Big Impact/Little Preparation CoreNet Global Research Bulletin In Partnership with Jones Lang LaSalle OVERVIEW Uncertainty characterizes the current period, starting with the global economy. Yet even with some encouraging signs at the macro-economic level, the corporate real estate (CRE) industry is still confronting record-low transaction volumes, an absence of credit, air-tight capital, devaluation, falling rent and occupancy rates, several tranches of toxic CMBS refinancing, and then some. Now, add to the list a serious revision in lease accounting standards as proposed by the Financial Accounting Standards Board (FASB) and its global counterpart (IASB). A new study, Lease Accounting Changes: Big Impact/Little Preparation, conducted jointly by CoreNet Global Research and Jones Lang LaSalle, shows 99% of CRE executives have not fully evaluated a new set of big accounting rules changes that could take effect as early as 2012. At the same time, the survey underscores the need for CRE to align closely with corporate finance in approaching the proposed changes, which apply to publicly-traded and privately-owned corporations as well as to real estate and equipment. "This means that CRE executives, whether at their initiative or otherwise, are going to be talking a lot more to the finance side of the house to understand the changes and manage for the future," according to Jones Lang LaSalle's Managing Director of Corporate Capital Markets Mindy Berman. KEY FINDINGS ? There?s limited awareness of upcoming changes in lease accounting but agreement that CREs need to learn more soon ? Capitalization of leases will have a significant and negative impact on the balance sheet and reported earnings ? Changes may not alter lease versus own decisions to a great degree, but CREs will reconsider lease terms to minimize financial impact ? The current proposal applies only to the base leased amount and not to common expenses

Keywords: Lease Accounting, Accounting, Lease Management, Balance Sheet, Operating vs Capital Lease, Buy vs. Lease, FASB, IASB

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