The Objectives of the IASB
The International Accounting Standards Board (IASB) has issued proposals on how leases are to be accounted for by companies that report under International Financial Reporting Standards.
Accordingly, the IASB has initiated a joint project to develop a new approach to lease accounting that would ensure that assets and liabilities arising under leases are recognized in the statement of financial position.
They intend to publish proposals for public comment, with a view to completing this important convergence project during 2013.
These proposals, once finalised, are also expected to be adopted by the Australian Accounting Standards Board and apply to Australian companies.
Leasing is an important activity for many entities and the impact on corporate real estate will be significant. The proposed changes are likely to affect how future decisions are to be made by Corporations when constructing accommodation strategies.
The objective is that lease accounting will provide users of financial statements with a complete and understandable picture of an entity’s leasing activities.
To achieve accounting which truly recognizes all liabilities of a company and fairly represents the substance of a business would seem reasonable.
That it will add to the burden placed on companies by the complexities of modern accounting rules is an argument which is also gathering some momentum.
What the Proposals Mean for Your Business
There is some work yet to be done by IASB however the new rules once finalised, will have an impact on a company’s balance sheet and more importantly from an industry perspective on how leases in future will be structured between parties.
The real cost of systems and resources in order to manage the reporting process will be significant as many companies currently use lease accounting systems that are informal, incomplete or inaccurate.
As most major corporate occupiers will be required to report lease obligations on their balance sheet it is important to consider at an early stage what the proposals will mean and how
to go about establishing lease management systems that are able to respond to the proposed rules.
A System to Manage Lease Accounting
Guardian Global Systems provides an international web based (SaaS) Corporate Real Estate portfolio management and lease administration system (CRE) which allows users to accurately report on assets, contracts and costs.
The system provided by Guardian Global Systems models the lease rent structure including lease tails, all option periods and manages the review mechanisms and generates reports on total accommodation costs.
The system has been designed to anticipate the proposed requirements that may be imposed by the International Accounting Standards Board for lease reporting.