FASB and the business community

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Paul M. Tesdal, Senior Vice President, Brokerage

We are roughly four months removed from the Financial Accounting Standards Board’s (FASB) release of long awaited and debated changes to financial reporting processes.  While these new changes will not go into effect until 2019, company financial reporting policies and procedures could be affected in a much shorter period of time. In fact, in a recent survey, 70 percent of companies said they expect to move forward with new guidelines in this tax year.

Ultimately, companies will be required to capitalize their leases for both real estate and equipment, including any large leased assets such as airplanes, construction machinery, and manufacturing equipment.  This is a shift that, going forward, could change how commercial property leases are negotiated.

The impact of these new regulations could be farther reaching than just the commercial real estate sector. It could affect businesses and industries of all kinds.

FASB Chair Russell G. Golden stated, “When the new FASB and IASB lease standards take effect, they’ll provide investors across the globe with more transparent, comparable information about lease obligations held by companies and other organizations.”

Golden’s intent likely is to say transparency standards will end the ambiguity involved in the often-substantial lease obligations of companies.  Those involved in bringing this change forward hope to bring light to the off-balance sheet financing that is a commonality in today’s corporate environment.

A logical starting point to gain more information and conduct research on the matter is www.fasb.org.

  • Transparency is the new norm: New FASB regulations are designed to add greater levels of transparency and insight into leasehold interests—property and equipment—by companies, for the benefit of investors and bankers, among others.
  • Proper Planning will save time and money: While the precise impact is yet to be fully known or understood, companies are advised to consult with the appropriate financial, accounting and legal counsel, to plan a proactive strategy.
  • Real Estate companies can be a valuable resource: Commercial real estate professionals can be part of the team that identifies strategies and opportunities to address areas that can be impacted or ultimately will need a change in direction.