ATLANTA--(EON: Enhanced Online News)--Avison Young announced today that research from an internal study indicates that numerous companies are unaware of the impact that the Financial Accounting Standards Board’s (FASB) and International Accounting Standards Board’s (IASB) new lease accounting standards will have on their enterprise value.
“All that was needed before the new standard was an Excel spreadsheet, but going forward, companies will need a more detailed analysis when calculating a company’s lease obligation”
Avison Young’s results are part of a two-year study of more than 100 companies that fall in the small to mid-cap range. With the first deadline for the new standards nearly two years away, most companies are lagging far behind.
“Roughly 77 percent of companies we surveyed have said that their auditors are looking into the new guidelines or that their accountants are evaluating the impact of the new standards,” said Sean Moynihan, principal at Avison Young in Atlanta. “Companies need to reexamine existing leases before the new standard, a process that could take as long as 12 months, in order to extract embedded operating costs, such as taxes, insurance, common area maintenance and initial direct costs for compliance.”
Research from the study also revealed that 85 percent of operating leases are not currently on companies’ balance sheets, which equates to over $2.8 trillion dollars of leases going on balance sheets around the world after the effective date of the new standards.
“Lease classification, rental rate structure, options and concessions are additional factors that may significantly increase lease values as well, if companies do not thoroughly review what actions may be taken in advance of the effective date,” said Moynihan.
Recently, Ernst & Young published its own study that demonstrated that 90 percent of companies are aware of the changes to lease accounting, yet only seven percent have begun the process of identifying, reviewing and measuring their current lease portfolio as well as establishing internal controls and accounting policies.
“All that was needed before the new standard was an Excel spreadsheet, but going forward, companies will need a more detailed analysis when calculating a company’s lease obligation,” said Moynihan. “The analysis Avison Young utilizes provides a black and white picture to demonstrate the full financial statement impact of competing deals before a lease is executed.”
About Avison Young
Avison Young is the world’s fastest-growing commercial real estate services firm. Headquartered in Toronto, Canada, Avison Young is a collaborative, global firm owned and operated by its principals. Founded in 1978, the company comprises 2,400 real estate professionals in 79 offices, providing value-added, client-centric investment sales, leasing, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial, multi-family and hospitality properties.