FASB Publishes New Lease Accounting Standard

Woodbridge, NJ – February 26, 2016 – In 2006, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) undertook a project to address the widespread criticism that the current accounting standards do not accurately capture the financial impact of leases (most from the lessee side are off-balance sheet).  Ten years later, the project is complete, and yesterday the FASB announced the newly adopted Standard. 

Under the new Standard, a lessee will be required to recognize on its balance sheet assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP (Generally Accepted Accounting Principles), the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP—which requires only capital leases to be recognized on the balance sheet—the new Standard will require all leases to be recognized on the balance sheet.

The Standard also will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.

While it has been a long process, we believe that the Standard will help ensure entities are appropriately recording the impact of their real estate leases on their financial condition.  According to Marc Betesh, Founder and CEO of Visual Lease and KBA Lease Services:

Once fully implemented, the new Standard will provide a much more accurate and reliable picture of an entity’s financial health.  I am pleased that the FASB eliminated many of the problematic areas it had initially proposed in the early days of the first Exposure Draft back in 2010.  It will still take quite a bit to properly record lease transactions, but the Standard is much more practical, especially when it comes to real estate leases. 

Visual Lease already distinguishes the different types of leases and the new reporting requirements for each.  It then calculates all of the new balance sheet entries for Right of Use (ROU) assets and liabilities for both the FASB and IASB Standards.  

Mike Bell, Senior Advisor at Visual Lease reflected:

The key to a successful transition to the new lease Standard will be getting organized as soon as possible.  This will include ensuring that your Lease Administration software is fully FASB/IASB compliant, your CFO has evaluated the Balance Sheet implications of the new Standard on your corporate financial ratios and that you have a plan to manage your reporting requirements, not only for real estate, but for all leases.  The organization will need to consider the impact that lease terms have on the Balance Sheet and take action over the coming years to minimize the impact expected in 2019.

Much of this Mike has discussed in detail in his Blog at www.visuallease.com/bells-blog/ and with his whitepaper entitled “The Lease Accounting Tsunami” at http://www.visuallease.com/fasb/.

For more information about the changes and how Visual Lease can help you to be prepared, please visit us at www.visuallease.com.

 

About Visual Lease

Visual Lease’s mission is to facilitate efficient administration and exact compliance of real estate obligations through world-class software and customer service. We are committed to being real estate experts by staying in front of industry and technology trends while continually refining our products and services. The values driving us are excellence, diversity, dedication and passion. 

Visual Lease was founded by the principals of KBA Lease Services in 1995.  Since its inception, Visual Lease has served businesses with portfolios of leases ranging from 15 to over 6,000.  Our tagline, “Lease Software by Lease Professionals” is a source of pride based on our industry-leading expertise in commercial real estate and lease administration.  No other company offers Visual Lease’s breadth of experience.