Operating Leases - "The Finale?"

Operating Leases - "The Finale?"


January 2010

Off-balance sheet arrangements have long been the concern of accounting regulators - and economic consequences related to these items (i.e. Enron) have prompted regulators around the globe to develop standards that increase transparency in financial reporting. Operating leases are also considered off-balance sheet obligations. As a result, the replacement of lease accounting continues to be a priority for the Financial Accounting Standards Board (FASB - which sets US standards) and the International Accounting Standards Board (IASB - which sets standards for all IFRS-regulated countries). In March 2009 these Boards issued a discussion paper called "Leases: Preliminary Views" which outlined the proposal for a new global lease accounting standard. The proposed standard would require the replacement of all operating leases with capital lease accounting, triggering a shift of billions of dollars to balance sheets across North America. It is estimated that 70% of the lease value to be capitalized involves commercial real estate. The end result of a change of this magnitude will be a vast shift rippling through financial reporting, processes and metrics across all US and global industries. This Business Briefing examines the impact on users of commercial space of the proposed accounting change aimed to take effect in 2012.

Keywords: lease, accounting, operating, capital, Cushman, Wakefield, Cushman Wakefield, Operating Leases - The Finale?, Winter 2010

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