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