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Lease Accounting: Don’t Shoot the Messengers May 13, 2010

Posted by Bob Cook in Financial Planning & Analysis, Lease Accounting.
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In a previous post, I wrote about the scene at JLL’s presentation on the new lease accounting at the Corenet Global Summit in New Orleans – about how I had been told it was like the “chicken wire” scene in the Blues Brothers. The corporate real estate community in the audience, didn’t quite throw beer bottles, but it did vocally express displeasure regarding the new rules and the fact that someone like FASB should influence their world.

Anyone who has read my other blog posts, knows how I think the new lease accounting is going to be game-changing in corporate real estate and how it’s important for corporate real estate execs to spend effort to understand the standards and how they’re going to affect their lives. The Corenet meeting just showed how far from this ideal many in the corporate real estate community are. JLL was being a responsible corporate citizen by trying to inform the corporate real estate community about the coming lease accounting changes. It’s too bad the community didn’t listen as well as it should have.

The lease accounting changes are long overdue. Today, our largest companies lease huge amounts of office space to accommodate their legions of “knowledge-workers”, yet the obligation to make rent payments are not shown on company financial statements. Other big financial obligations, such as to repay money borrowed via bonds or bank loans, are on the balance sheet, but rent obligations are not. Yet, for some companies, rent obligations amount to billions of dollars – in many cases, much more than the obligation to repay bonds or loans. It is not possible for investors to get clear pictures of the financial conditions of these companies without these leases going onto the balance sheet. Putting these lease obligations on the balance sheet is at the core of the new lease accounting standards. 

It is really important that corporate real estate execs become familiar with the accounting… and even more important … to get familiar with how it will change their lives. This is not something just for accountants to think about. It is going to affect corporate real estate execs’ lives at many levels – from determining the financial impact of signing a lease … to evaluating the lease-vs-own question … to documenting formal portfolio plans … to determining chargeback policies … to designing department processes … to hiring and training department talent.

All the big real estate service providers are publishing pieces describing the new lease accounting standards. Educate yourself.  But don’t shoot the messengers.

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Comments»

1. John Lind - May 28, 2010

Great article Bob,

You have inspired me to understand this better from a Canadian perspective.

John Lind

2. The New Corporate Lease Accounting Standards — The Tenant Advisor - June 11, 2010

[…] that are expected to become effective in Fiscal Year 2012/2013. Read Bob Cook’s post “Lease Accounting: Don’t Shoot the Messenger” from  his blog Corporate Real Estate […]

3. The New Corporate Lease Accounting Standards - June 12, 2010

[…] (FASB) that are expected to become effective in Fiscal Year 2012/2013. Read Bob Cook’s post “Lease Accounting: Don’t Shoot the Messenger” from his blog Corporate Real Estate […]


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