Wednesday, November 2, 2011

FASB Lease Accounting Update: Will Lessors/Landlords be excluded?

Posted on Tue, Nov 01, 2011

Much has been written about the significant joint undertaking by FASB and IFRS to update lease accounting rules in the name of improved transparency. With real estate leases comprising a high percentage of all operating leases, the potential impact for the commercial real estate industry looms large, for landlords, tenants, brokers and property managers alike.
Tucson lease accountingAfter taking significant public comment on its exposure draft published in August 2010, FASB agreed to reconsider its proposed guidance. The primary aspect of the draft changes redefined all operating leases as right-of-use assets (capital leases), thereby moving accounting from the operating statement to the balance sheet. The volume and nature of comments has pushed final guidance back to 2012.
However, in a recent Project Update published on FASB's website, FASB indicated that the two bodies have "tentatively decided that a lessor’s lease of investment property would not be within the scope of the receivable and residual approach. Instead, for such leases the lessor should continue to recognize the underlying asset and recognize lease income over the lease term."
The International Council of Shopping Centers (ICSC) is one of several industry organizations advocating for the commercial real estate industry's interests with regard to proposed lease accounting changes. ICSC summarized the decision made at FASB/IFRS' last meeting in thisOctober 27, 2011 news report:

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