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China

New Lease Accounting Standards to have Dramatic Impact on Businesses in Asia Pacific

JLL highlights real estate implications of new legislation


​​Shanghai, Jan 25, 2016 –Businesses in Asia Pacific are bracing for the impact of a globally imposed new accounting standard for leased assets such as real estate and equipment.

The new International Accounting Standards Board (IASB), in conjunction with the US Financial Accounting Standards Board (FASB), has confirmed that by 2019, all companies reporting under the International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (US GAAP) will be required to comply with the rules.

This means that as early as 2017, companies must start preparing comparative financial statements under the new standards to meet with annual reporting requirements.

According to real estate consulting firm JLL, there are wide-ranging ramifications for companies' real estate strategies given that rent, which represents one of the largest operating expenses for many businesses, will now be reflected on balance sheets.

Sylvia Koh, Head of Corporate Consulting, Asia Pacific at JLL, says: "The new standard will meet the need for greater transparency of companies' lease assets and liabilities, which are currently off balance sheet. However, it will be a significant administrative burden for companies to adhere to it. In particular retailers, leisure operators, banks and other companies that rely heavily on real estate leasing, will have dramatically increased financial reporting obligations."

Says Ms Koh: "Companies need to start by analysing the day one impact of their leased property portfolio on their financial statements. Going forward we're likely to see changes in terms of how real estate deals are structured; more companies will explore flexible options such as serviced offices and co-working spaces; and there may be increased interest in considering owning versus leasing real estate."

She adds that while the changes will be gradual, "we would urge companies to act swiftly. If you currently don't have your lease data in a structured fashion that is of auditable quality, it will be important to get the right advice and resources to put it in order as the immediate first step towards complying with the new standard."​