Proposed Lease Accounting Standards will be Costly
February 20, 2012
On February 16, 2012, a coalition of several leading commercial real estate organizations, including NAR, released a report that examines the economic impact of the International Accounting Standards Board (IASB) and Financial Accounting Standards Board’s proposed lease accounting standard. The study specifically looks at how the proposed standard would negatively impact job creation, the health of the U.S. commercial real estate sector, and liabilities of U.S. publicly traded companies.
The report analyzes the current proposal and under a best case scenario estimated its economic impacts as: (1) increasing liabilities for U.S. public companies by $1.5 trillion; (2) increasing costs to U.S. public companies by $10.2 billion annually; (3) potentially leading to job losses of over 190,000; (4) reducing U.S. household earnings by $7.8 billion annually; and (5) lowering U.S. GDP by $27.5 billion each year.
The coalition is calling on the accounting boards to conduct a comprehensive examination of the costs and benefits of their lease proposal. A failure to fully understand the economic ramifications of these accounting changes or to address these issues may harm businesses that own, invest, or rent commercial real estate.