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Lease Accounting Fisticuffs at Corenet…. April 26, 2010

Posted by Bob Cook in Financial Planning & Analysis, Lease Accounting.
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Well, maybe it didn’t really come to blows. I’ve been told, though, that the scene last week with JLL presenting the new lease accounting at the Corenet Global Summit was a little like the Blues Brothers singing behind chicken wire at Bob’s Country Bunker. I imagine the FASB guys on the panel were taken aback a bit. Little did they know about the High Animosity (now here’s a good storyline for Mel Brooks) between corporate real estate groups and their sister accounting and finance groups.

 I’d be interested in hearing some accounts of the episode.

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1. Kenneth Rudy - April 28, 2010

Perhaps the best reviews of a movie are from those who actually attended the screening. Being in the room would have provided the attendee with the insight that the upcoming lease accounting changes are coming as a result of the public’s desire for more transparency in financial reporting by companies. There is no doubt that change always creates new challenges and the need for more education, but the thrust of the panel discussion was to alert corporate real estate professionals to what may be coming down the road, and more importantly to urge them to begin communicating not only with their corporate finance departments about the implications, but to become more active in communicating with FASB (the Financial Accounting Standards Board) to try to shape the final outcome while the rules are still in draft form.

What Jones Lang LaSalle, KPMG and the FASB Fellow was trying to accomplish was to provide a wake-up call to the corporate real estate community that NOW IS THE TIME to become smarter about the pending changes, to prepare for them and most importantly, to try to shape the final rules in a way that makes administering them practical for all parties. The 1-2 audience members who were caught completely off guard by what was being presented were naturally the most anxious in their questions as to “Who is FASB anyway?” and “Why are they doing this to us?”. This “Minority Report” hardly reflected the level of understanding and engagement represented by the other 100 attendees.

Feel free to take a look at our blog posts on the topic at:

http://www.joneslanglasalleblog.com/corenet/category/lease-accounting

2. Lease Accounting: Don’t Shoot the Messengers « Corporate Real Estate Strategy - May 14, 2010

[…] } In a previous post, I wrote about the scene at JLL’s presentation on the new lease accounting at the Corenet […]

3. Richard L. Podos - May 15, 2010

First, I want to thank Kenneth for running a great panel.

Second, yes, the chicken-wire scene is a pretty funny analogy… but it wasn’t really that bad. Really!

I think the general consensus was that: (a), everyone understands the need for financial reporting and transparency, so bringing leases on balance sheet is fine, but (b) the quarterly mechanisms being recommended by FASB, especially as regarding the ramifications of subjectively assessing lease renewal likelihood, are a mistake, unwieldy at best, and will require an undue amount of time and attention, for little perceived benefit.

I think that Mindy Berman hit the nail on the head: The CoreNet community, especially the occupiers, need to get into the game in order to push back on FASB regarding implementation. (Disclosure: I am part of a team in the S&PP community trying to address that.)

BTW, Mindy also had a great view regarding the financial ramifications of on-balance sheet reporting. In answer to Dale Schlather at C&W as to whether the change will influence own versus lease decision-making, she made the point that economics and corporate strategy should be paramount, not accounting. I very much agree with her… on the other hand, we know how much corporate behavior can be influenced by bonus compensation, so we will see!


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