New lease of life in AASB 16 reporting
New global accounting standards for commercial property management may be optional now – but time is running out to prepare, says Yardi’s Neal Gemassmer.
The much-discussed new standards adopted by the Australian Accounting Standards Board will start to influence the lessee balance sheet and commercial decisions from 1 January 2019.
AASB 16 Leases falls in line with internationally-agreed standards such as those released by the Financial Accounting Standards Board and the International Accounting Standards Board.
“As AASB 16 Leases becomes standard accounting practice, many leased assets previously held off balance sheet, will be brought onto companies’ books,” says Gemassmer, Yardi’s vice president of sales.
“This can potentially add billions in lease-intensive industries. Balance sheets, income statements and KPIs could all be fundamentally affected with challenging judgements, choices and systems investments lying in wait for many.”
The Australian Securities Investment Commission has said the move will have “the greatest impact on financial reporting since the adoption of International Financial Reporting Standards in 2005”.
“Companies with large and complex lease portfolios can expect to transfer billions of dollars of debt liabilities onto the balance sheet, creating headaches around data collection and systems,” Gemassmer adds.
While Yardi doesn’t expect AASB 16 to fundamentally change the way businesses work, it will bring more transparency to reporting across every industry – most notably for real estate investment trusts.
Gemassmerpoints to one survey, conducted by CBRE and PwC, which found that executives did not expect the new standard to significantly alter their leasing strategies.
“However, three quarters thought systems implementation and data collection would be difficult. Shareholders will be more aware of a business’ risks, which will help them make better decisions,” he adds.
CFOs and other finance leaders also need to be thinking about how to steer investor communications, adjust bonus schemes and make other high-level decisions.
“While mandatory reporting starts from 2019, companies need to provide three-year comparative financial reporting – which means tracking back their lease calculations and schedules back to the beginning of 2017.”
The right technological support is essential to ease the compliance burden, Gemassmersays.
“We have been investing heavily into Yardi Voyager to ensure it complies with the new standards and provides both landlords and lessees with the features they need.
“This includes amortisation of the lease asset value and lease liability over the life of the lease, generation of all required general ledger accounting entries, and a full reporting suite including prior year comparisons and compliance reports. And for lessees, it will mean new metrics to consider – for example, when calculating valuations.
“Most of our clients have already implemented Yardi’s AASB 16 features to prepare for the new standard, but we regularly talk to businesses who are still undecided about their next steps. For them I have one message: AASB 16 is a fundamental overhaul of how your business will manage its financial reporting. Be ready for the financial and operational challenge that it presents.”
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