Balance Sheets of the Top 1000 US Companies See Significant Impact

2 min read
April 17, 2019
CoStar Real Estate Manager Blog

Balance Sheets of the Top 1000 US Companies See Significant Impact

Companies in every industry use leasing.  There is an unusually high concentration of leases in the large retail, airlines and telecommunications sectors many of which fall within the top 1000 largest US companies. The greatest proportional balance sheet change from the new standards will be in the real estate industry. Grocery stores and specialty shops tend to lease many of their brick and mortar store locations and compliance with the new lease accounting standards represents a significant challenge and expense to these top 1000 US companies.

Airline industry operations are heavily dependent on leases. Airport terminals for check-in kiosks, departure gates, baggage handling activities, wide- and narrow-body airplanes that transport their passengers comprise the majority of airline operation leases.

Food services, general merchandise, and apparel retailers are heavily dependent upon real estate leases for their brick-and-mortar operations. Across the US and internationally, retailers operate thousands of stores many of which are leased.

The Financial Accounting Standards Board published a new set of lease accounting standards in February 2016, known as ASC 842. These new standards require companies to report the assets and liabilities associated with all of their commercial leases as separate line items on their balance sheet. Currently, companies report line items for inventory, accounts payable, accounts receivable, and plant, property, and equipment. To meet new compliance standards, companies will now have to report on Right-of-Use Assets and Liabilities. An estimated $3 trillion of leases will transfer onto corporate balance sheets over the next few years as companies increase both workforce and efforts to adopt the new standards.

Case in Point: A Fortune 100 bank turned to CoStar

•    CoStar provided the bank with the most secure system platform available

•    CoStar was also able to offer a Standardized Information Gathering document that demonstrated its highly sophisticated technology and mature processes related to the protection of information

•    CoStar migrated the lease management system, which allowed for enhanced workflow and status updates of lease changes.

•    CoStar integrated with the SAP ERP system for posting new assets and liability journal entries as well as amortization entries.

•    CoStar automated processes providing less room for mistakes—giving CFOs less to worry about with errors in financial statements

•    CoStar’s data connector integrated a proprietary lease management system.

•    CoStar team members reviewed what the accounting changes and balance sheet impact would be for each business unit, enabling better business decisions for leasing operations.

•    CoStar team members were able to complete the software implementation in only four months. The easy-to-use functionality of the lease accounting software made CoStar the smart choice for this Fortune 100 ASC 842 and IFRS 16 compliance needs.