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Accounting for leases / accounting for greenness

In our original report, we identified two major areas of change that we thought would have a significant impact on tenant behaviour, changes to the accounting rules that we thought would accelerate the move towards shorter duration leases and changes in sustainability reporting.  Both are discussed below.

 

Accounting changes to the treatment of leases

 

At the time that our paper was originally published in 2010, the IASB and FASB had proposed a new approach to lease accounting that would significantly change the way companies across the world account for leases. The proposed model would eliminate off-balance sheet accounting. All assets currently leased under operating leases would be brought onto the balance sheet, removing the distinction between finance and operating leases. This will dramatically change the balance sheets of major property occupiers.

 

After a much delayed process, The International Accounting Standards Board (IASB) finally issued the standard to effect the changes, IFRS 16 “Leases”, in January 2016. It became effective from 1st January 2019.

 

Although the impact in terms of the accounting changes is for the tenants rather than the landlord, the knock on effect will be to increase the pressure for shorter and more leases.

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