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.
On November 11, 2015, the FASB voted to proceed with the issuance of the new standard on Leases in Q1 2016 with an effective date of 2019 for public companies and 2020 for non-public companies. Please see the FASB’s press release for further details.
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.
Proposed 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 is scheduled to issue its standard in February 2016. The IASB's effective date is 2019, while the FASB has stated its effective dates will be 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.
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!