Richard Drake, former Property Finance Director for Barclays, discusses the likely impacts of Lease Accounting changes on occupiers and CRE teams. He can be contacted via LinkedIn or direct: richdrake@yahoo.co.uk
Lease Accounting changes
Although the new Lease Accounting changes are taking a long time to develop, they are still coming and will affect anyone dealing with Corporate Real Estate (CRE). This is a great opportunity for CRE teams to engage, proactively, with their businesses, to add value to business planning.
What are the main accounting impacts?
- The value of leasehold commitments will go on Balance Sheet with a matching “right of use” asset.
- It is likely that rental payments will be split between interest and capital repayments, resulting in an increased P&L cost at the beginning of leases.
What are the likely impacts for Corporate Real Estate?
- Pressure from Finance and Treasury to reduce the length of leases
- Freeholds become more attractive
- Incentive to reduce cost of fit-outs to reduce depreciation over shorter leases
- Real need to understand and document business occupation requirements
What are the timescales?
- A revised Exposure Draft will be published in Q2 2012
- A new Standard to be published late 2012/early 2013
- To apply from 2015/6 but comparatives required from 2014
What do you need to do?
- Make sure you know your real estate portfolio
- Engage with your business, finance department and treasury
- Watch out for the new Exposure Draft and respond to it (the IASB welcome comments)
- Don’t panic!
Want to know more?
Drop Richard an email: richdrake@yahoo.co.uk
Also:
The IASB have their own site for the Leasing Project: www.ifrs.org/Current+Projects/IASB+Projects/Leases/Leases.htm
Jones Lang LaSalle have produced a dedicated site that is also helpful: www.leaseaccountingchanges.com
