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Canada's Magazine for Financing & Leasing Executives

June 6 , 2014

Lease accounting changes to negatively impact CRE

Canada – With the proposed changes to FASB/IASB standards for lease accounting, many companies will report net income results which will be worse under the new rules than under the current rules, says a report by commercial real estate tenant representation firm, Cresa, and the Financial Executives Research Foundation (FERF), the research affiliate of Financial Executives International. Key findings of the survey include:

  • Almost all (90 per cent) of the companies will see some impact on their balance sheet. Many will register significantly negative changes in the capital ratios.

  • A large majority (85 per cent) of the companies – both lessors and lessees – also expect the proposed changes will have a negative impact on the economics of their business.

  • Respondents estimate the ongoing cost of compliance will average 62 basis points (bp) – 56bp for larger companies and 67 bp for small and midsize businesses. This represents approximately $5.6 million annually for a company with $1 billion in revenues.

  • A majority of the companies do not believe the proposed changes will benefit shareholders.

  • More than a third (34 per cent) say the proposed changes will have a negative impact on the accuracy and transparency of financial statements. Forty-six percent of those who have performed a formal review of the impact of the proposed rules expect the changes will distort balance sheets.

  • Most think the proposed rules will increase audit and compliance costs.

  • Almost all larger companies will need to modify existing information technology (IT) systems; nearly two-thirds anticipate needing new software.





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