There are issues in the leasing market in the United States because of new accounting standards that are currently taking shape. The Financial Accounting Standards Board (FASB) has been working with the International Accounting Standards Board (IASB) to bring together its generally accepted accounting principles (GAAPs). The FASB and the IASB have come up with new standards that will be completed next year and achieved in 2013. Companies usually list their leases as footnotes in their financial statements but the new standards requires companies to put leases as assets and liabilities on their balance sheets. Companies would be weakened in the eyes of investors and it could change the way tenants choose to lease space. Companies with these agreements are also required to estimate their sales numbers over the entire term of the lease to put it on their balance sheet.
Connection
The connection to chapter one is the accounting standards known as the Generally Accepted Accounting Principles (GAAPS). Mindy Berman, a managing director of corporate capital markets at a real estate services company says, "It is going to get ugly. On the day the standard gets implemented, all these companies will suddenly have to record much higher rent, and they are going to have to record this as a significant liability on their balance sheet." Canada has already changed its GAAPs to international standards and it'll take the U.S approximately 5 years to change too.
Reflection
The purpose for the FASB to merge its generally accepted accounting principles (GAAPs) is to increase the international comparability and the quality of standards used in the United States. There currently aren't any problems with the old GAAP's and that makes me wonder why they're merging with international standards. They believe that the outcome would be the worldwide use of a single set of high-quality accounting standards for both domestic and cross-border financial reporting. Companies that lease out space would also have a decrease in their leases and the length of time for the lease would also decrease.
Seeing as we have done the same article, it has come to my attention that you might’ve misunderstood the objective of the article. I mean, yes, as far as I know there aren’t any problems with the current set of GAAPs but they are just implementing a new standard to add on to the GAAPs. The point of having the new standard is to apparently resolve the “significant off-balance-sheet activity for leases” but I don’t think that’s going to be the main affect of the change. It might help in a way or another but it just seems like it’ll pull other triggers to complicate the problem they’re trying to solve in the first place. Kind of like a domino effect. It’s as if they’re still “experimenting” with what they can do but is unsure of how they’re going to change things in the most positive and satisfying way to all businesses. The leasing market will definitely have a downfall but so with many other companies dealing with leases.
ReplyDeleteJoshua Thang
ReplyDeleteSince I'm doing the same article as you guys, I can understand what you are tell us. When Mindy Berman says "It is going to get ugly", it means that many reputations of the business will be ruined because since now companies have to carrry such huge liabilities on their balance sheets, it's going to make the businesses look bad. For example, if a business wanted to lend money from the bank, the bank may ask for the financial statements of the business. When the bank sees that the balance sheet has a heavy liability such as the lease, the bank may decide not to lend any money to the business because the bank may think the business may not be able to pay off the debt. I thought you could of improved your connection a little bit more by explaining how this new accounting standard will make a bad reputation of the businesses. Besides that, I think you did a great job on your summary and you had an indepth opinion of the article.