New Lease Accounting Rules Have Owners, Tenants Worried

February 28, 2014
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After months of conflicting reports about when widely anticipated major changes to how leases are treated under accounting rules will take effect, March 2014 has been set as the next date for making a decision on these changes. The new rules would require companies to make extensive disclosures about their real estate and equipment leases, among other requirements. Four years of debate over lease accounting changes have left companies unsure about how to prepare for new standards.

A new survey from tax professional services firm Deloitte LLP reveals that companies are confused as to how to implement the new accounting rules, which have been criticized for being too complex. The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have acknowledged the confusion and have offered to work to simplify things. Both small and big-box or national tenants will be affected by the new reporting requirements, but Deloitte’s survey indicates that the accounting impact appears to be more severe for tenants than for owners.

The new standards will require companies to recognize on their balance sheets all assets and liabilities resulting from leases of more than 12 months in duration, based on the present value of the lease payments. Both landlords and tenants must list the assets and liabilities resulting from all longer-term leases.

 

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