Lease Accounting New Rules for New Standards

1 / 1

Lease Accounting: New Rules
for New Standard
This FASB update follows the January
13th release of IFRS 16, the International
Accounting Standards Board (IASB)
version of the new lease standard.
The New Lease Accounting Rules
(“New Rules”) will materially change
the way leases are accounted for
globally by requiring all leases (real
estate, equipment, vehicle, etc.) to
be capitalized and presented on
the balance sheet as a Right of Use
(“ROU”) Asset and Lease Liability. This
is a significant change from the current
rules which allow for many leases to
be used as a form of off-balance sheet
financing.
The effective date for public companies
is for fiscal years beginning after
December 15, 2018, including interim
periods within those fiscal years. Private
companies must comply in fiscal years
beginning after December 15, 2019
and interim periods beginning
after December 15, 2020.
However, the effective date
is the end of the process, not
the beginning. Readiness, fiduciary
responsibilities and regulatory
compliance will require most public
organizations to be completed early in
2018 to allow for review and testing.
Why It Matters: The Business
of Balance Sheets
Lease contracts are commonly used
across all industries, all countries
and all types of assets. The extensive
volume and reach of lease agreements
means that transition to this
new standard will be exhaustive.
It is estimated that the majority
of new assets and liabilities
recorded on the balance sheets
of lessees will be related to
commercial real estate. The relative
size of commercial real estate lease
arrangement compared to total assets
and their ability to shift business ratios
embedded in legal covenants may
elicit an increase in scrutiny of real
estate transactions.
Corporate real estate departments will
have to interface more closely with
Treasury, Corporate Accounting
and Finance departments. Real
estate processes, procedures
and technologies will have to
be updated to capture relevant
data, calculate financial
statement balances, and to ensure
that management has adequate control
over the financial reporting process.
Understanding the rules and evaluating
the impact prior to the effective date
will facilitate a cost-effective and
successful transition.
The long road to issue a new lease
standard has final come to an end.
But as this process closes, a different
path begins. The journey moves out of
the meeting rooms and deliberations
of FASB and IASB – and into the
boardrooms of companies around the
globe. The real work begins now
as the New Rules identify an
arduous trek to implementation
and updated operating
processes.
The time for action is now. Creating
a timeline that identifies tasks and
targets from now until formal adoption
will be of critical importance to a
smooth transition. CRE will find itself
front and center in the changes ahead.
Cushman & Wakefield will continue
to monitor all developments in this
area critical to commercial real estate
industry – to add value and assist our
clients with their understanding of the
New Rules.
MITCHELL RUSBARSKY, CPA MCR
Managing Director of West Region,
National Financial Consulting Group
RYAN RAWLS, CPA
Regional Director,
National Financial Consulting Group
Education across all divisions
and levels in corporation
Creation of complete
database and documentation
for all lease agreements
Development of enterprise
software with integration to
financial reporting system
Corporate policy approval
processes
The long process to issue a New Lease Accounting Standard has finally come to
completion. After 10 years of discussions, the Financial Accounting Standards
Board (FASB) released Topic 842 – “Leases” on February 25th, 2016.
Transition Goals
20 | Cushman &Wakefield