FASBen Your Seatbelts

January 18, 2011 | 7:00 am ET Staff Reporter

Danger lies ahead for landlords and tenants when it comes totracking leases and understanding all the components of the deals as new FASB regulations approach passage.

That warning comes from Grant Thornton’s national managing partnerAlvin Wade (right), who spoke at the Corenet Global Southwest chapter meeting Thursday at the Hotel Palomar with La Quinta VP/controller Jim Forson, Transwestern managing director Karra Guess, and Cyberlease managing member Marc Maiona. The FASB is drafting new regulations that will do away with off-balance sheet accounting for operating leases and both lessors and lessees and their accounting will be impacted, Alvin says. Everyone involved with leases needs to improve how they document assumptions (and they need to support them) and make the information accessible so it can be audited. “It will change the way we do things,” he adds. The cash hasn’t changed, but accounting is very different.

Most clients are procrastinating, Alvin says, and while it may not be effective till 2015 (give or take depending whom you ask), there's abroader impact than just the financial segments, extending to theoffice equipment you rent, too. Anything with a lease is subject to the new regs. Karra says business leaders need to start looking at this now and find copies of all leases. And if you were planning on waiting until '14 or '15 to do it? Alvin’s advice: Don't.

Grubb & Ellis corporate finance’s Bob Cook spoke Jan. 11 at a Grubb & Ellis forecast at Cowboys Stadium about FASB, too. He says decisions must be made through the lens of new accounting, because grandfathering of existing leases is unlikely. Companies must apply accounting retrospectively in financial statements, too; even with an effective date of 2013, the standard will be applied to leases starting in 2011.

Above, Bob's sharing the seven things to do now:

understand the impact to financial statements, internal budgets, data needs, processes

educate and alert the real estate and accounting teams and affected parties across the enterprise

get your house in order by auditing your inventory, sweep in rogue leases, audit and prepare lease abstracts

re-think strategies, of owning versus leasing, durations, and consolidation and planning

revise your decision-making tools and criteria by establishing new performance metrics and de cision-support models and then establish interim processes

Part of the process includes making assumptions for renewals, contingent rent, and service components, so you need to make sure lease information doesn’t get lost

Marshal your resources and mobilize them to design compliance processes. Begin discussions regardingtechnology platforms, cross-functional collaboration and resources

FASBen Your Seatbelts

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