While CFOs may understand the basics surrounding the new Financial Accounting Standards Board (FASB) standards, they may not be aware of the many ways FASB could actually disrupt their business.
Under the new rules, any lease over 12 months must now be recorded on the balance sheet as both an asset and liability by the business leasing the property. This will have an explosive impact not only on commercial real estate, but all leased assets used to run businesses, such as computers, data center equipment, vehicles and more.
But beyond the balance sheet, issues range from the increasing complexities of how commercial real estate leases will be negotiated in the future to potential investor complications. CFOs need to be prepared for the myriad challenges that the FASB lease standard will bring. Implementation remains nearly three years away for privately held companies and almost two years away for public companies, but CFOs need to start preparing today.
That preparation starts with understanding exactly what the FASB lease standard is.
Previously, it was accepted that an operating lease was neither an asset nor a liability, but the new FASB standards will require companies to collect and record massive amounts of data as they record the leases on both sides of the ledger. This may cause balance sheets to balloon, and that’s only the beginning. As noted in our recent article on Huffington Post, the new FASB standards will have many disruptive consequences—especially for companies who are not proactive and prepared.
To successfully navigate the new FASB lease standard, CFOs and business leaders should partner with a commercial lease expert that has extensive experience helping them overcome economic challenges and looming real estate issues such as the new FASB standards.