Intense Pressure Pushes Controversial (And Questionable) Accounting Rule Changes Back To 2012

After intense lobbying and pressure from accounting groups and other interested parties, including the commercial/investment real estate industry, a proposed accounting rule change that would have needless and profoundly negative effects on the corporate balance sheets is being pushed back to 2012.

"Inundated with comments and complaints, international accounting rule makers have decided to resubmit proposed changes on how companies account for real estate and capital equipment leases for public comment, a move that will probably delay issuance of a new lease accounting standard until well into next year.

"The International Accounting Standards Board (IASB) and the U.S.-based Financial Accounting Standards Board (FASB) have made extensive changes to the exposure draft, released in August 2010 with the stated goal of improving the financial reporting of lease contracts. The boards said the changes would result in a more consistent approach to lease accounting and would improve the quality of financial information available to investors.

"However, a four-month public review period brought nearly 800 comments from dozens of organizations representing real estate, equipment leasing, and other business and financial interests in December. Many respondents complained that the rules as proposed would make the standard more complex and inconsistent, with commercial property groups criticizing the changes as a potential threat to the market recovery itself."

Read the entire piece outlinding the timetable pushback. The changes have been pushed back to 2012 at the earllier. One of the biggest issues facing owners of investment real estate -- and institutional tenants, alike -- is that "options" to renew corporate leases must be stated on the balance sheet as liabilities. If the firm is publicly held, this can have a significant impact on the balance sheet, which impacts share value and confidence of investors. If you are an office or retail or landowner, the likely impact will be companies will start leasing space only for five or 10 years at a time, and never mention options to renew. Which could increase the cost of lease space as owners are less likely to be as flexible on price if they have no assurance that the corporate tenant wants to say.

The unintended consequences of good intentions.

h/t to Coy Davidson at The Tenant Advisor