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Preview of the upcoming GAAP standards LEASE ACCOUNTING PREPARED FOR: Bill Baldwin, Managing Principal Charlie Lutz, Senior Advisor 303-228-0800 www.cresa.com.

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Presentation on theme: "Preview of the upcoming GAAP standards LEASE ACCOUNTING PREPARED FOR: Bill Baldwin, Managing Principal Charlie Lutz, Senior Advisor 303-228-0800 www.cresa.com."— Presentation transcript:

1 Preview of the upcoming GAAP standards LEASE ACCOUNTING PREPARED FOR: Bill Baldwin, Managing Principal Charlie Lutz, Senior Advisor Dave Hallett, Audit Director

2  Overview of Proposed Changes  Discussion on Financial Statement Impact  Case Study  Other Matters to Consider OVERVIEW OF PRESENTATION

3 Background Information  During 2014, FASB and IASB continued discussions on the 2013 proposal  Remain committed to putting most leases on balance sheets  Agreed to simplify many aspects of the 2013 proposal  Response to constituents’ concerns about cost and complexity Current Status of Exposed Draft  Plan to complete deliberations in 2015  Expected effective date of 2017  Most likely to include retrospective adoption  Some open issues  Lessee disclosure  Transition  Finalized effective date BACKGROUND & CURRENT STATUS

4  Eliminates off-balance sheet accounting for leases  Right-of-use asset and liability  measured at the PV of future lease payments and presented on the balance sheet  Income statement geography and timing (for some) of recognition will change  Financial performance ratios may no longer be useful – other metrics may evolve  Lease assumptions will need to be continually assessed IMPLICATIONS OF REVISED GUIDANCE

5  Terms of Lease:  5 Years at 5,000 square feet  Rent - $20/psf  Operating Expense - $8.50/psf  Rent escalation – 3% / year  Free Rent – 5 months  Tenant Improvement Cost - $20/psf  Tenant Improvement Allowance - $10/psf Current Guidance  Rent, less amortized TI Allowance, is recognized straight-line over the term of the arrangement  Leasehold improvements are capitalized on the balance sheet and amortized over the lesser of their useful lives or the lease term EXAMPLE IMPACT – FACT PATTERN

6  Two types of leases under new guidance  Type A  Typically for non-property and will look more like financing transactions  Type B  Typically for property and will look more like current operating lease transactions  Our example would classify as a Type B lease  Lease liability established  Calculated as PV of rent payments less lease incentive, and excluding operating expense payments  Interest expense increases the liability, which is offset by actual payments to the landlord – think typical mortgage amortization schedule  Right of use asset of established  Same value as liability  Amortized (for Type B, amortization is back-loaded because it’s the balancing factor between straight-line rent and front-loaded interest expense)  TI Improvements are unchanged  Lease Extensions PROPOSED GUIDANCE IMPACT

7 FINANCIAL STATEMENT ILLUSTRATION

8  Restructures  Subleasing  Foreign exchange rate implications  Leases in a business combination  Build-to-suit leasing transactions  Sale and leaseback transactions  Related party leases OTHER MATTERS TO CONSIDER

9  Cresa  Cresa is an international corporate real estate advisory firm that exclusively represents tenants and specializes in the delivery of fully integrated real estate services, including: Transaction Management, Project Management, Strategic Services, Corporate Solutions, Site Selection, Lease Administration, Capital Markets, Mission Critical Solutions, Relocation Management, and Facilities Management. For more information, visit  With a staff of 38, Cresa Denver is the largest dedicated corporate real estate advisory in the region. Cresa Denver is a full service office for Cresa representing some of the largest organizations in the region including Digital Globe, DaVita, Holland & Hart, Trimble Navigation, Westerra Credit Union, Oracle, Vail Resorts and Hunter Douglas. For more information, visit  Anton Collins Mitchell LLP  ACM is a full service public accounting firm headquartered in Denver, Colorado with offices in Northern Colorado and Boulder. ACM provides assurance, tax and consulting services to entrepreneurs and established companies ranging in size from start-up to organizations with multi-state and international operations. The firm’s membership in the BDO Alliance USA (“the Alliance”) combines the resources of the 5th largest accounting organization in the world and the personal attention of a local firm. To learn more about ACM visit  ACM’s Real Estate Team has spent years focusing on the highly specialized needs and challenges that the real estate, construction and hospitality industries experience. We realize that developers, financial institutions and owners and operators of commercial real estate require sophisticated advice to guide them through the maze of constantly changing regulatory shifts, complex tax demands and operational issues. We deliver. OVERVIEW OF CRESA & ACM

10 Dave Hallett | Audit Director |Anton Collins Mitchell LLP Dave began his public accounting career in 2000 and has worked with companies in various industries including: real estate, software development, telecommunications, satellite communications, retail, multi-brand interactive commerce, gaming and the renewable energy sector. Bill Baldwin |Managing Principal |Cresa Denver Bill has over 28 years of corporate and commercial real estate experience having worked in local, national and international environments. Bill specializes in complex real estate transactions that typically involve a significant level of strategic planning and financial engineering to execute on. Bill is well-versed in managing the process of complex assignments to obtain internal consensus within the client organization as well as to execute to the desired objective. Charlie Lutz | Senior Advisor | Cresa Denver Charlie Lutz is a Senior Advisor specializing in major corporate opportunities. He provides tenant representation services for clients throughout the metropolitan Denver area. With each client, he focuses on controlling occupancy costs, limiting risk and increasing flexibility in their real estate strategies. BIOGRAPHIES


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