U.S. and International Accounting Boards Push Back Target for Global Accounting Standard on Leases
The U.S. and International Accounting Boards have pushed back the June target for reaching a global accounting standard on leases. Significant comments have come in regarding the exposure draft released on August 2010 and the boards are working through all the feedback. A new standard on leasing is now anticipated in the last quarter of 2011. Latest viewpoints consider that “on balance sheet treatment” for all leases over 12 months is virtually certain.
A recent survey that Bayer Consulting conducted within the real estate and retail industries resulted in the following opinions:
- 40% of respondents believed that the new rules would lead to shorter leases
- 25% of respondents believed that lessees would reconsider purchasing space over leasing space
- 42% of respondents believed that the new rules would be detrimental to existing debt covenants and create difficulty for financing
- 66% of respondents believed that the new lease standard would lead to upgrades in technology systems if the landlord/lessee is handling more than 1,000 leases
In short, many companies expect to meet significant challenges in meeting the new requirements. Each client’s requirements will be different and as such, Colliers International will seek to tailor solutions to meet every individual client’s needs. The company encourages clients to consult their accountants for additional direction and information.
About the exposure draft: On August 2010, the U.S. and International Accounting boards released an exposure draft on the planned changes in Lease Accounting Standards for 2011 and the implications for real estate clients and their decisions. The proposals would bring lease obligations and the related assets onto the balance sheets of lessees. The proposals for lessors were designed to ensure that an entity that retains significant risks or benefits of the leased asset would recognize that asset and an associated obligation to allow the lessee to use the asset. In other cases, when the significant risks or benefits of the leased asset are transferred to the lessee, the lessor would derecognize the portion of the asset that is transferred by the lease agreement.
There has been considerable comment from all industries concerning the planned changes. The U.S. and International Accounting boards have been considering the feedback from all industries and are close to completing their deliberations. In light of that feedback, the boards have made tentative decisions that mean the Leasing Standard they are working toward will reflect changes from the exposure draft issued on August 2010.