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Companies Not Prepared for Lease Accounting Change

'We're definitely seeing a lack of awareness on the part of respondents about these proposed lease accounting changes and impact on their corporation's financial position.'

By Michelle Napoli | Updated on August 20, 2009

BOSTON—Corporate real estate executives are largely unprepared for proposed lease accounting changes that could go into effect in a few years, say CoreNet Global and Jones Lang LaSalle. Today the two released results of a recent survey they conducted, which indicate that 99% of survey respondents have not fully evaluated the proposed changes’ impact on their balance sheets and profit and loss statements.

Despite almost all respondents indicating that they have not fully evaluated the impact of the proposed changes, the survey also showed that two-thirds said the changes would have a significant or major impact on their balance sheets. The vast majority of respondents–87%–agreed that they need to learn more about the proposed new accounting rules soon. Twenty-three percent indicated that they were not even aware of the impending changes.

As currently proposed the changes–the result of a joint project between the Financial Accounting Standards Board in the US and the International Accounting Standards Board–would require public and private companies alike to capitalize on their balance sheets all leases of real estate and equipment. According to Jones Lang LaSalle, in 2005 the Securities and Exchange Commission estimated that the new rules would translate to companies capitalizing about $1.3 trillion of operating leases. “Industry experts estimate that approximately 70% of all operating leases are for real estate, impacting balance sheets by $1 trillion or more,” JLL says.

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