Guardian Global Systems warns that the proposed changes to lease accounting by IASB are likely to affect how future decisions are to be made by corporations when constructing accommodation strategies and that the impact on corporate real estate will be significant.
The International Accounting Standards Board (IASB) has issued proposals on how leases are to be accounted for by companies that report under International Financial Reporting Standards.
Accordingly, the IASB has initiated a joint project to develop a new approach to lease accounting that would ensure that assets and liabilities arising under leases are recognised in the statement of financial position. They intend to publish proposals for public comment, with a view to completing this important convergence project during 2013.
These proposals, once finalised, are also expected to be adopted by the Australian Accounting Standards Board and apply to Australian companies.
Guardian Global Systems warns that the proposed changes are likely to affect how future decisions are to be made by corporations when constructing accommodation strategies and that the impact on corporate real estate will be significant.
The objective is that lease accounting will provide users of financial statements with a complete and understandable picture of an entity’s leasing activities, the company states. It notes that to achieve accounting that truly recognises all liabilities of a company and fairly represents the substance of a business would seem reasonable. However, it adds that that this will add to the burden placed on companies by the complexities of modern accounting rules is an argument that is also gathering some momentum.
There is some work yet to be done by IASB, however, the new rules once finalised, will have an impact on a company’s balance sheet and more importantly from an industry perspective on how leases in future will be structured between parties, Guardian Global Systems continues.
The real cost of systems and resources in order to manage the reporting process will be significant as many companies currently use lease accounting systems that are informal, incomplete or inaccurate, the company imparts.
According to Guardian Global Systems, as most major corporate occupiers will be required to report lease obligations on their balance sheet it is important to consider at an early stage what the proposals will mean and how to go about establishing lease management systems that are able to respond to the proposed rules.