In April 2016, CBRE and PwC held a joint webcast entitled “New Lease Accounting Standards and the Potential Impact on your Company and Real Estate Strategies”. This insightful webcast presented by subject matter experts from both CBRE and PwC focused on three primary areas of the upcoming changes that will impact virtually every company to some degree: 1) Overview of the new standards 2) What companies can be doing now to prepare for the changes 3) How might the new standards affect a company’s real estate strategies
On February 29, 2016, CBRE’s Task Force on Lease Accounting issued a white paper reviewing the impact the new accounting standards will have on the go-forward real estate strategies of lessees. Whether it is a lease vs. own decision or the monetization of an asset by means of a sale/leaseback, companies will now want to know the financial impact of a real estate transaction on their balance sheet before making a decision. Understanding the nuances of the new standards, as well as possible unintended consequences, is important for all companies given the new environment that will soon exist where virtually all leases are capitalized.
In January 2016, CBRE’s Task Force on Lease Accounting issued a detailed review of the IASB’s newly issued standard, as well as the key components of the soon to be issued FASB standard. Written in a Frequently Asked Questions (FAQ) format, this in-depth review from the lessee perspective allows one to quickly understand the details of the new standards, as well as know the key differences between each of the standards.
The FASB will be issuing their new leasing standard in Q1 2016. Read this article from the FASB on what lessees can be doing in advance to be ready for the new standard.
There are several steps companies can still undertake prior to the issuance of the new standard in Q1 2016 to avoid being caught flat-footed once the Standard is issued. Please read this excerpt from CBRE’s Global Viewpoint White Paper for further insight into this topic.
Changes to Lease Accounting
In August 2010, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), collectively the “Boards,” issued the Original Exposure Draft (OED) for the “Leases” project. A proposal requiring all leases to be capitalized (i.e., on balance sheet). Just shy of three years after issuing the OED, the Boards issued the Revised Exposure Draft (RED) in May 2013, which represented the culmination of the Boards’ deliberations after receiving 800 comment letters and holding numerous joint working group meetings, public roundtables, workshops, webcasts and other outreach activities related to the OED. While the RED addressed some of the concerns arising from the OED, it still drew an additional 600 comment letters voicing continued concerns over its complexity and burdensome requirements.
Now, almost three years after issuing the RED and over five and one-half years after issuing the OED, the "leases" initiative is a reality. The IASB issued their standard (IFRS 16) on January 13, 2016 and the FASB issued it's new standard (ASC 842) on February 25, 2016. The IASB's effective date is 2019, while the FASB's effective dates are 2019 for public companies and 2020 for non-public companies. In the case of both standards, companies will have the ability to "early adopt" the new standard.
The Boards have agreed on the primary objective of requiring lessees to record the liability associated with leases "on balance sheet". Unfortunately, there were several areas where they were unable to reach agreement. As a result, a uniform global lease accounting standard has not been achieved and each board is issuing its own standard.
As these new standards will have a significant impact on companies who follow U.S. GAAP and/or IFRS, we encourage you to gain an understanding of this topic. The technical updates and thought leadership papers published by CBRE's Global Task Force on Lease Accounting will allow you to understand in greater detail the technical requirements of the new standards, as well as the financial impact and strategic implications of this broad array of changes facing the real estate industry.
As has been the case for five years now, CBRE’s Task Force will continue to keep you posted as this epic project progresses towards the finish line.
Additional InformationFASB Votes To Proceed With Final Standard On Leases (November 2015)
Previous White Papers
To Converge or Not to Converge...That is the Question!
CBRE Global Viewpoint White Paper
CBRE Global Viewpoint Whitepaper FAQ’s
Another Delay for the Lease Accounting Project
Accounting Boards Agree to Compromise
Accounting Boards at Odds = More Delays!
CBRE's Comment Letters
CBRE submits comment letters to the FASB/IASB in response to the Original and Revised Exposure Drafts: