A new whitepaper released by Cushman & Wakefield discusses the seemingly arcane topic of lease accounting. As a result of Enron and that whole era of off-balance sheet accounting, the entity responsible for regulating lease accounting in the United States (the Financial Accounting Standard Board – FASB) is considering significant changes to the rule. If you are responsible for real estate at a publicly traded company, you might want to read the paper because as it says the proposed changes are “vast and complex.”
We at The Commercial Tenant Resource are all in favor of transparency in corporate America. However, we hope that smart real estate people will read what FASB is proposing and comment. In this highly complex area, the law of unintended consequences could certainly be a factor. Another issues is that FASB issues sweeping pronouncements that apply to all leases including such items as equipment contracts. Real estate leases are certainly different from copier leases and in the past 20 years have become immensely complex and difficult enough to handle in their own right without lots of additional regulation.
It is difficult to tell if the new standard will be adopted, and if so how it will be modified from the current proposal, but the impact on publicly traded companies and their use and accounting for real estate could be profound.
As there are significant updated to this issue we will write about them here.