Whether your company leases business equipment or you work with tenant representatives to lease commercial space, the new Financial Accounting Standards Board (FASB) standard is going to affect your business. This standard goes into effect in December 2019 for public companies and December 2020 for private ones and will affect the way companies who work with tenant reps calculate their leases and report yearly assets and liabilities.
Although 2019 may seem far off, tenant rep firms recommend that you begin to adjust your business accounting methods now. Keep in mind this adjustment in mind when reviewing the many financial factors it affects, as adhering to this new rule may not be as easy as you think.
What Is the New FASB Reporting Standard?
Issued in 2016, the new FASB financial reporting standard completely changes how businesses report lease information on their accounting statements. Lease payments until recently were reported as business expenses; they now must be converted to and reported as business assets and liabilities. Tenant representatives say this standard applies to any business with a lease longer than 12 months and to both commercial property leases and other leased assets.
The reason for this change in standards is to provide a more accurate detail of a company’s actual financial liabilities as opposed to just its monthly expenses. Based on this and the new reporting requirements, companies must work even more closely with their tenant rep firm on lease negotiations and calculations/ They must anticipate the effects of property leases that now appear on company financial statements.
How Will This Affect Your Business?
Tenant reps already working to help clients adjust to these changes expect the new FASB standards to affect nearly all lease-holding businesses in some way. With lease payments now being represented as business liabilities, many businesses may have to tighten their lease budgets. Some may even have to renegotiate their current lease with the help of their tenant rep firm.
To truly understand the financial cost of various assets, some companies may need to keep multiple sets of books to satisfy their own needs as well as FASB reporting standards. The increase in documentable liabilities may also affect business investments if investors view companies as running less efficiently than previously.
Buying Rather Than Leasing
Tenant representatives who normally assist in negotiating leases may find that it is actually more beneficial for a business to buy their building, rather than lease it. When leasing is still preferred, tenant reps and their clients will likely have to go through more complex lease negotiations as tenants push for shorter leases to give them more benefits.
Tenant representatives stress that even if your business practices remain the same, the new FASB reporting standard could significantly change your company’s reportable assets and liabilities. In turn, this could affect your leasing budget, investors, decision to buy or lease commercial space, and even your company’s profitability.
Changing your accounting methods to reflect the new FASB standard may be time-consuming and complex. Tenant reps recommend getting started now. Your tenant rep firm can assist by helping you renegotiate your lease if necessary to still have the most favorable lease terms!