MWE real estate partner Paul Becht, CPA, was interviewed about lease accounting standards by Mike Cohn, Editor-in-chief of Accounting Today, for their podcast. Paul discusses FASB’s new leasing standard and how it will affect the real estate industry and other sectors. Find the audio below.
Can you tell us what is the biggest impact of the new standard?
“The biggest impact is to the lessees, to the actual tenants. There’s not as much of an impact on the lessors. The biggest change is the fact that these leases are going to be on the balance sheet of the lessees of these tenants, that hasn’t happened before.
Are you seeing many companies having trouble handling those new standards?
“I’m definitely hearing a lot of chatter about the difficulty of applying these standards. They’ve been discussed for around a decade or so: improving revenue recognition and improving lease accounting. In the case of lease accounting, investors felt like “I can’t compare one company in an industry to another company in an industry because one entity may recognize the lease on their balance sheet as a capital lease, and another will say we didn’t quite meet those criteria by a little smidge, therefore we don’t have to capitalize that lease agreement.” The investor had no insight into what was truly a similar obligation and therefore without being able to compare companies adequately, investors said they were at a disadvantage and they need better information.”
Do you think that real estate businesses and retailers are going to be equipped to handle the new standards?
The sophisticated companies, the larger retailers, they are definitely getting ahead of it and figuring out what kind of software they need, what kind of expertise in terms of personnel they’ll need to apply the standards. I think the larger organizations that have the staff and have thought through this have planned [ahead], and when they didn’t have the adequate staff, used an outside consultant or public accounting firm to help them.