New FASB Proposed Accounting
Proposed Lease Accounting Standards impact all leases, not just real estate, and requires a present value calculation to be performed on the lease payments including all likely renewals and documenting all the assumptions. The resulting present value is then utilized to book a “right to use” asset and a long term liability on the balance sheet. The calculations and assumption will need to be reviewed each reporting cycle and adjusted for any changes during the term of the Lease.
Forthcoming modifications to lease accounting guidelines will have a key effect on U.S. businesses and will influence return on assets as well as other significant economic ratios considerably. Managing lease obligations off the balance sheet has assisted businesses to shield the performance of there real estate portfolio, however that dynamic will most likely be eliminated as soon as 2011.
The rate of office vacancies and under-utilized spaces openly play a part to damaged assets. The nearer you get to an absolute efficiency capacity of revenue-per-square-foot, the less impact those damaged assets will have with the accounting guideline conversion.
Putting into practice a system to trace physical usage of space and the elimination of underutilized space will decrease damaged assets and produce greater efficiency metrics.
BCC can assist your organization with the number of hypotheses and computations essential to converting your company’s existing operating leases to the new accounting method.