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Lease accounting with the Gershwin Brothers and The Rolling Stones: Part 1
Corporate Real Estate Journal,
6
(4),
307-322
(2017)
Abstract
The long awaited, and greatly debated, changes to lease accounting standards under GAAP and IFRS were finalised in early 2016. As corporate real estate executives, their advisers and their peers in corporate finance have now begun the first steps toward implementing these new standards, many are surprised by the financial statement outcomes. More specifically, due to the very subjective nature of many aspects of the new standards, companies are finding — and will increasingly find — two identical leases can have widely divergent accounting outcomes when accounted for by two different companies. This is true not only for a scenario where one company reports under GAAP and another under IFRS, but also for two different firms both of whom report under the same accounting standard. Despite the fact that the FASB’s and IASB’s stated intentions more than seven years ago were to achieve consistency and transparency in lease accounting, this paper discusses why companies should not expect either outcome. In Part 1, we explain how two identical leases can realistically yield very different accounting outcomes, and why it matters from a balance sheet, shareholder equity, net income and EBITDA perspective. The forthcoming Part 2 of this paper will focus on steps CRE directors, their advisers and counterparts in finance can take to optimise various financial impacts in light of the new standards.
Keywords: lease accounting; FAS 13; IAS 17; ASC 842; IFRS 16; GAAP; IFRS; LeaseCalcs
The full article is available to subscribers to the journal.
Author's Biography
Marc A. Maiona is the Founder and President of LeaseCalcs, Inc., establishing the firm in 2010 as the first SaaS solution to address and solve the problems resulting from the new lease accounting standards from the FASB and IASB. Marc began his career in commercial real estate with Cushman & Wakefield in Southern California, later joining CyberLease, the leading North American lease audit and lease accounting firm in 1994 as an audit manager, where he was soon after named a Managing Member of the firm. Over the years Marc has represented large, sophisticated tenants across a broad spectrum of industries, including firms like Fidelity Investments, State Street Bank, General Dynamics, Chevron, ExxonMobil, Boston Consulting Group and scores of others in order to assist them with the auditing and accounting related to their real estate leases. His many papers on the subject of commercial leasing and lease accounting issues have been published in leading industry publications such as Corporate Real Estate Journal, and Marc’s and LeaseCalcs’ insights have been quoted in the Wall Street Journal, Compliance Week and the Journal of Accountancy. Marc has also contributed to the operating costs section of ‘Negotiating and Drafting Office Leases’ by John Wood and Alan Di Sciullo, published by Law Journal Seminars Press. Marc received his Bachelor’s Degree in Economics from the University of California, Irvine. He has served on the Board of Directors of the International Association of Attorneys and Executives in Corporate Real Estate (AECRE), as an Associate Member of the Real Property, Trust and Estate Law Section of the American Bar Association and is a member of the Editorial Board of Henry Stewart Publications’ Corporate Real Estate Journal.
