This article is from the Australian Property Journal archive
A MAJORITY of companies still account for their leases of corporate real estate using traditional methods and may face significant challenges in managing lease data under the new accounting standards issued by the Financial Accounting Standards Board (FASB), according to a survey from CBRE and PwC.
The new standards require virtually all leases to be recorded on a company’s balance sheet by 2019, or 2020 for privately-held companies.
The survey results found 56% of respondents lease more than half of their real estate; 23% own no real estate at all; and 4% said they own all of their real estate outright, which means nearly all companies will need to confront the changes.
Only 10% said they would reduce the average term of new leases, and 2% said they would reduce the amount of space they lease.
No change in process and/or level approvals was expected by 43%, and 26 anticipated the overall leasing process would take longer due to the changes.
Only 8% expect to change their lease vs. own strategy, even though a commonly perceived benefit of leasing real estate, in keeping the lease liability off the balance sheet, will be eliminated.
Implementing accounting policy changes will not be difficult, according to 53%, with key implementation challenges for respondents lying in managing lease information, including systems and data issues, with 75% saying systems implementation issues will be very or somewhat difficult and 73% said data collection would be very or somewhat difficult.
PwC’s capital markets & accounting advisory services practice managing director Sheri Wyatt said having the right leasing data is critical in companies preparing for future implementation considerations and staging for integration with longer-term solutions.
“Organisations should take a measured, phased approach, starting with a current state assessment that focuses on lease inventory, accounting process, data and system capabilities, which will help yield the greatest value across their businesses,” she said.
The survey found 68% of respondents are still accounting for their leases of corporate real estate using spreadsheets with no formal corporate real estate asset management system.
“Given the various requirements of the new standard, those companies with a significant number of leases may find that spreadsheets will no longer meet the needs of the new standard.
“For companies with significant lease portfolios, trying to adopt the new standard without system upgrades or integration could be a missed opportunity to automate labor-intensive activities and free up valuable resources.
“Companies that track leases on spreadsheets and manage leases in a decentralised manner may face significant challenges in gathering data. Even for the more sophisticated corporate real estate groups that have asset management systems, these systems are often freestanding and utilised more for lease administration purposes, with no integration with the company’s accounting systems,” Wyatt said.
Australian Property Journal
