CFO.com – New Lease Accounting Standards May Demand Two Sets of Books

As reported in an article on CFO.com on January 14, 2016, the complexities of the new lease accounting standards from the IASB and FASB, coupled with the fact the standards are not fully converged, will result in most multi-national firms finding they need to keep two sets of books. Those two sets of books will be in addition to their current set of books that will have to be maintained through the effective date of those new standards (2018 or 2019 depending on the company’s election).

This is precisely why LeaseCalcs was developed

And is in use by S&P 500 and other sophisticated firms today. LeaseCalcs – an award-winning, patent-pending, enterprise class, web-based application – slashes the time, complexity and costs associated with implementing the new lease accounting standards, and allows you to maintain your lease accounting under current and future standards for both US-GAAP and IFRS. Get it right – get LeaseCalcs!

FASB Board Member: “You’re Already Late” If Not Working on Lease Accounting

If you needed further confirmation that the new lease accounting standards are real and finalized, look no further than yesterday’s CFO Journal from the Wall Street Journal. For anyone involved in commercial real estate or financial reporting, three quotes from the article prompt three questions and three easy to apply recommendations.

CFO Journal Quotes on new Lease Accounting standards:

Here are three key quotes from the article to think about as you negotiate a new lease today or wonder how your firm will prepare for and deal with the new accounting standards in the New Year, if not today:

Quote #1: 

Quote #2: 

… and the most telling quote comes directly from FASB Board Member, R. Harold Schroeder:

Quote #3:

What questions should you be asking?

If you read the quotes above while thinking about your, or your client’s, lease portfolio you should have heard these questions in your head:

Question #1: 

What has your firm or client done to prepare for 2016 and beyond, keeping in mind the new accounting rules don’t just affect new leases but existing leases as well?

Question #2: 

Do you know, today, the precise – let alone ballpark – balance sheet, P&L and EBITDA impact from any of your firm’s – or your client’s – 10 or 20 largest leases?

Question #3: 

Has your firm or client “started” or is it, in the words of FASB’s Schroeder, “late”?

If these quotes and questions give you or your client the slightest bit of unease, there are several prudent steps to take, beginning today, to be able to deal with them confidently and ease the transition to the new accounting standards.

Here are some suggestions:

Suggestion #1: 

If you are not already doing so, every new lease should be negotiated and analyzed with a detailed eye on how it will affect the corporate financial statements – balance sheet, P&L and EBITDA – under both current and new lease accounting rules. The stakes are too high to make decisions on the basis of discounted cash flows. If you are a tenant, you can do this within your corporate real estate or finance functions or at least make sure your broker is providing that insight and analysis. When done the right way, the lease analysis prepared before the lease is signed can seamlessly drive a company’s lease accounting process and management.

Suggestion #2: 

Take a first step: grab 5 or 10 of your leases and have them modeled in LeaseCalcs. How? Its easy. Call your broker, or call us. LeaseCalcs’ brokerage firm subscribers are already helping their clients understand the actual financial statement impact from any lease. But is your broker already using LeaseCalcs? The odds are in your favor as global firms like Avison Young, CBRE, Colliers, Cresa, Cushman & Wakefield, JLL, Newmark and Transwestern along with a lot of smart regional firms already use LeaseCalcs. But our corporate subscribers are already doing this for themselves. But whichever way you approach it, the sooner you get actual data from your actual leases the sooner you’ll understand what’s in front of you.

Suggestion #3: 

Get your stakeholders in a room together in the next 30 or 60 days. Pick your team: CFO, CAO, Controller, corporate real estate, treasury, finance, internal audit, IT, outside brokerage team(s), auditors and advisors. (Hint: start with a core group and expand it later.) Get educated yes, LeaseCalcs offers educational classes (yes, LeaseCalcs offers educational classes). Then, figure out who has your lease data and whether its reliable, discuss current and new accounting policies in light of these changes and how the leases and the lease accounting process flows through the organization. You will find the new lease accounting standards, and complying with those standards, will be a multi-disciplinary process involving multiple stakeholders. Similarly, you’ll need a system that allows the lease accounting data to be securely shared while encouraging collaboration across the organization and with third parties as needed.

What exactly is LeaseCalcs?

LeaseCalcs’ patent-pending, enterprise-class Software-as-a-Service (SaaS) platform allows commercial real estate professionals and corporate tenants to understand the entire financial statement impact – including balance sheet, P&L and EBITDA results under both the current and new lease accounting standards – from any real estate transaction while it is being negotiated, and allows the parties to the transaction to manage their lease accounting by leveraging that same data. From lease analysis, to lease accounting and management, to comps and market intelligence LeaseCalcs is improving the process and results for everyone involved.

Whether you’re a broker, a corporate real estate or finance executive or an outside auditor, LeaseCalcs was developed to address these new lease accounting standards. If you’d like to learn more about LeaseCalcs, or if you would like to schedule a demo, please reach out.

You can view the original WSJ article here or download a PDF of the article here: Finance Chiefs Get Ready for New Rules – WSJ Dec 07 2015.

LeaseCalcs Awards & Upgrades

Last week we heard from the organizers of the 2015 Real Estate Tech Awards that LeaseCalcs’ subscribers have already been nominating LeaseCalcs as the best real estate tech application for 2015!

If you haven’t already voted, take 10 seconds click here open the RETA survey and help spread the word about LeaseCalcs. Simply type “LeaseCalcs” in the first line for the first question on the survey, fill in any other firms or people you want to nominate, and hit “done”.

We’re proud to say this won’t be the first award for LeaseCalcs, and we doubt it will be the last given the way we’re changing everything about lease analysis, lease accounting and even market intelligence. But just wait until you see the upgrades we’re about to roll out: critical date reminders for brokers and corporate subscribers, portfolio-level dashboards, custom workflows and built in lease approvals, etc., etc. for corporate subscribers!

VOTE NOW! 2015 Real Estate Tech Awards

Last week we heard from the organizers of the 2015 Real Estate Tech Awards that LeaseCalcs’ subscribers have already been nominating LeaseCalcs as the best real estate tech application for 2015!

If you haven’t already voted, take 10 seconds, click the link below and help spread the word about LeaseCalcs. Simply type “LeaseCalcs” in the first line for the first question on the survey, fill in any other firms or people you want to nominate, and hit “done”.

http://realestatetechnews.com/blog/vote-now-2015-real-estate-tech-awards

LeaseCalcs’ patent-pending, enterprise-class Software-as-a-Service (SaaS) platform allows commercial real estate professionals and corporate tenants to understand the entire financial statement impact – including balance sheet, P&L and EBITDA results under both the current and new lease accounting standards – from any real estate transaction while it is being negotiated, and allows the parties to the transaction to manage their lease accounting by leveraging that same data.

Critically, with the FASB’s and IASB’s recent announcement of the official effective date of the new lease accounting standards, LeaseCalcs’ brokerage and corporate clients make better leasing decisions while significantly reducing the cost and complexity of complying with those new lease accounting standards. From lease analysis, to lease accounting and management, to comps and market intelligence LeaseCalcs is improving the process and results for everyone involved.

JLL Signs Master Subscription Agreement with LeaseCalcs

We are very excited to announce JLL and LeaseCalcs have formally expanded our relationship, allowing JLL’s professionals to enhance the financial analysis and lease accounting insights provided to their clients around the globe, while also providing JLL with valuable commercial real estate market insights previously not possible. The full press release can be found here.

JLL as an early adopter

We’ve been working closely with JLL for several years, with many of their offices being early adopters and strong advocates of LeaseCalcs. Now all of JLL’s professionals can utilize the same industry leading platform to help improve both their business and their clients’ business as well.

With the FASB’s and IASB’s recent announcement of the official effective date of the new lease accounting standards, JLL’s utilization of LeaseCalcs will allow its clients to make better leasing decisions while significantly reducing the cost and complexity of complying with those new lease accounting standards.

The integration of the “Broker Edition” and “Corporate Edition” of LeaseCalcs allows one set of data to serve multiple purposes – from lease analysis, to lease accounting and management, to comps and market intelligence – improving the process and results for everyone involved, which helps explain why many of JLL’s clients are already using the Corporate Edition of LeaseCalcs.

Read more “JLL Signs Master Subscription Agreement with LeaseCalcs” →

FASB Votes & LeaseCalcs Upgrade – August 2014

Just last Wednesday, as the FASB voted to finalize additional aspects of the new lease accounting standards, LeaseCalcs rolled out another important upgrade to make lease accounting and lease analysis even easier.

FASB Votes

Among the important results of the FASB’s votes were decisions that will impact sale-leaseback transactions and the establishment of the discount rate non-public entities can use to calculate the asset and liability values reported on their balance sheets.

Sale-Leasebacks – What You Need To Know:

Under the new lease accounting rules for US-GAAP, if the “leaseback” piece of the sale-leaseback is classified as a “Type A” lease instead of a “Type B” lease, the “sale” will be deemed to have “failed” and the seller / lessee will have to account for the transaction as a financing of the property. Hence, the big gain due to the sale that the seller / lessee thought they would realize will not be realized.

For companies who report under IFRS, where all leases will be classified as “Type A” leases, they will still be able to account for sale-leaseback transactions as a sale-leaseback. In other words, sale-leaseback transactions involving long-term leasebacks will still have appeal for internationally headquartered firms.

Beware of the re-purchase option. During last week’s FASB meeting the Board decided that for sale-leasebacks involving real estate – which they deem to be a “specialized asset” – if the seller / lessee obtains an option to re-purchase the property – even if the option were at fair market value – the transaction will have to be accounted for as a financing.

Incremental Borrowing Rates – What You Need To Know:

Non-public entities will be able to make an accounting policy election to use a “risk free rate” for purposes of establishing their liability and asset balances, rather than having to establish what their “incremental borrowing rate” would have been for any given lease. The “risk free rate” is viewed as the rate for “risk free” debt such as US Treasuries for a term comparable to the lease term.

The implication of the use of the risk-free rate is that a tenant’s asset and liability balances will be lower for the same lease accounted for by a publicly traded company whose “incremental borrowing rate” is higher than a private company’s risk free rate.

The use of a risk free rate also implies that for purposes of establishing whether a lease – under the new US-GAAP standards – is a Type A or Type B lease, the same lease classified as a Type B lease by a public company with a higher incremental borrowing rate could be classified as a Type A lease by a private company.

Whether a company uses a lower “risk free” rate or its actual incremental borrowing rate can impact how that lease – or portfolio of leases – impacts its debt to equity ratios, retained earnings and other balance sheet metrics.

Questions? LeaseCalcs has the answers. New lease accounting rules are going to impact all companies – public or private – who lease real estate and will greatly affect the way brokers and corporate real estate executives negotiate and analyze leases. Don’t wait any longer to sign up for LeaseCalcs – we make lease accounting and lease analysis easy.

Another LeaseCalcs Upgrade

LeaseCalcs is continually improving our patent-pending lease accounting and analysis application, and listening to our subscribers at firms like JLL, CBRE, C&W, Cresa, Transwestern, etc. As a result, we released an upgrade to LeaseCalcs that provides our subscribers with yet another way to analyze and understand how leases compare, because sometimes simpler is better. We’re even calling it the Simple Report.

The Simple Report shows you basic information about the leased premises, lease term and free rent, and compares the “structure” of the competing deals (e.g., NNN vs. Base Year vs. “Plus E”, etc.). It also includes the average effective base rental rate over the initial term and any NNN and electric charges at lease commencement. There’s more information, too, like NPV and gross rent costs, along with total net construction costs per square foot. Take a quick look – its great! Of course the more detailed lease accounting and analysis reports brokers, CRE executives and the C-Suite rave about are still there, too. Now there’s no reason not to use LeaseCalcs for every deal, including the simple ones.

Now, lets get back to work – you have deals to do and leases to account for, and we have even more upgrades to roll out!