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What’s the problem? Potential obstacles to implementation of the new lease accounting standards for real estate

What’s the problem? Potential obstacles to implementation of the new lease accounting standards for real estate

Transitioning a current real estate lease portfolio to meet the new FASB lease accounting standards should be reasonably straightforward, right? Maybe not. Many companies find accounting for real estate leases is trickier than expected. While the best-prepared real estate corporations have been aware of this impending change, many still find accessing the data required to transition leases to the new FASB standards far from simple.

One of the first questions your real estate corporation should ask is: Does your company’s internal systems have the capabilities necessary to capture and aggregate the essential information needed to comply with the reporting requirements of the new lease standard? 

Here are potential sources of difficulty under the new standards, as it will be necessary to identify and account for each. 

     Accounting for multiple assets within a lease

  • Leasing partial versus multiple floors of office space
  • Storage space within a leased asset
  • Specific parking spaces vs. a parking area
  • Signage on leased property
  • Land

Lease and non-lease elements

  • The decision to separating the lease for office space from the maintenance charges
  • Design and implement policies, processes and controls and systems to capture all changes that might occur over the life of the lease to make sure that all data is complete and up to date.

FASB standards introduce many new judgments and data requirements. Regardless of whether narrow changes are made to real estate strategies purely as a result of the new standard or broad changes are made to be responsive to other macroeconomic and governance developments, real estate companies must begin the process now. As the company prepares to implement there may be many questions. Traditionally, accounting advisors may be called upon to answer some of these questions, but there could be another closer source that just might be overlooked: your lease accounting software. The appropriate lease software choice will show how various decisions will impact your business operations. Powerful information customized to your exact specification can prevent mistakes and support better business decisions. With CoStar as a member of the lease accounting team companies will not only meet the most significant change in the history of lease accounting but also realize cost savings and improve the balance sheet.

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