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Following several years of deliberation,

the International Accounting Standards

Board (IASB) released IFRS 16, Leases

on Jan. 13, 2016. The new standard for

lease accounting is due to take effect

on January 1, 2019.

The issuance will induce change,

especially for lessees with significant

existing operating leases that aren’t

currently on companies’ balance sheets

such as retailers, transportation and

telecom users, and hoteliers. Notably,

the new standard does not address

specific treatment for real estate

separately. All classes of leased assets

are deemed one and the same in a

single model approach.

The intent of regulators is to provide

greater transparency by removing the

shadow debt created from operating

leases. However, investors,

shareholders and financial

analysts typically capture the

true financial position inclusive

of lease activities through

normalization adjustments to

key performance indicators.

No such adjustments will be necessary

upon implementation of the new

standard, allowing for improved

comparability between companies that

lease to those that own.

While intent is clear, and for some,

the change will merely be another

compliance exercise, the precise

impact of conversion for corporate

occupiers can only be determined

through pro forma quantitative analysis,

by calculating historical and current

operating results in accordance with the

new standard. This “what-if” approach

will arm corporate decision-makers with

the knowledge they need for developing

a viable real estate strategy, given the

new accounting measures.

The changes to lessee accounting on

financial statements can be quantified

to assess magnitude, whereas the

impact from revised corporate

real estate strategies can only be

determined over time. The residual

effect of the change in lessee

accounting on occupier operations

could well be more pronounced than

accounting implications. Corporate real

estate personnel will need to

expand their roles to a more

strategic function to maintain

competitive advantages, avoid




identify key drivers of change.

The change to lessee accounting should

have a lasting effect on corporate

real estate management through a

consolidated system. Corporate real

estate departments have been

administrative functions for

many large occupiers, whereby

tracking and managing of

properties can often times still

be undertaken by outdated

methods, with decentralized

information spread across

multiple platforms, within different

departments, or even across business

units. Such systems will be problematic

for implementing the changes to lessee

accounting, which will require detailed

information to accurately account for

both the RTU and liability. Even asset

management systems might not

be sufficiently automated and

properly integrated between lease

administration, tax, accounting and

other departments.

In addition to initial application,

subsequent remeasurement, changes

to lease terms, mandated quantitative

disclosures, and accrual of contingent

rents make up just a few of the

new time-intensive responsibilities.

Implementation of a robust plan is

needed to gather pertinent lease

data and develop an action plan to

consolidate data into a centralized,

customizable and automated property

management system that can fulfill the

needs of each department.

Corporate occupiers with significant

leasing should organize an integration

committee across all cross-

functional departments that

play a role in either the usage or

reporting of corporate facilities.

Each company has distinguishable

priorities that require careful and

tactical evaluation. Through this

broadbased approach, a full account

of the potential impacts and processes

can be determined, spurring a fresh

strategy that will align operational and

accounting objectives.

Lessee Accounting: Implications

of the New Leasing Standard

Revised accounting for leases will be an impetus for revisiting operational strategies.

Early assessment and preparation is essential for occupiers for financial accounting,

and in formulating a successful corporate real estate strategy.

Cushman & Wakefield’s expansive

service offerings can assist occupiers

with implementation of the new

lease accounting standard. Valuation

and Advisory’s (V&A) Financial

Reporting group provides valuation

and advisory services pertaining

to U.S. GAAP and IFRS financial

reporting requirements for tangible

and intangible assets and liabilities.

The Global Occupier Services (GOS)

team creates solutions that provide

a comprehensive menu of integrated

real estate and facility services




coordinated local execution, and

advanced data analytics.


Director, Valuation & Advisory

Financial Reporting


The Occupier Edge | 21