The Financial Accounting Standards Board and the International Accounting Standards Board have agreed to modify their proposed accounting rule changes that would have required balance sheet treatment for all commercial real estate leases.
The Incentive for Commercial Property Users to Lease-versus-Own Stays Intact.
The proposed changes to the FASB13 accounting rules would have jeopardized the current accounting treatment of operating leases by requiring all leases to be treated as capital leases, i.e. a lease obligation would show up as a liability on a tenant’s balance sheet. Read my blog post of December 22, 2010 for more details.
The real estate industry lobbied hard against this accounting rule change, with the ICSC (International Council of Shopping Centers) being especially active. The Mortgage Bankers Association (MBA) also weighed in heavily – and successfully turned around this controversial proposal.
Here’s the MBA’s recent report on the topic:
The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) (collectively, the Boards) have agreed to modify their controversial proposed accounting rules that would have required balance sheet treatment for all commercial real estate leases. The Boards have agreed to consider separating leases into two categories: financial leases and other-than-finance leases. Financial leases would be put on the balance sheet as an asset and liability and paid down over time. However, other-than-financial leases would be considered operating leases and would not have to be capitalized, which is the current accounting treatment for commercial real estate leases. MBA strongly supports the other-than-financial accounting treatment of commercial real estate leases. In addition, the Boards eased the standard for when lease option periods would have to be included in the lease value from “more likely than not” (over a 50 percent probability) to a much higher threshold.