Perspectives

Real Estate Spotlight

A walk-through of the FASB’s new leases standard

This publication provides insight into aspects of the new leases standard (ASU 2016-02) that are particularly relevant to lessees and lessors in the real estate industry.

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The bottom line: 

  • On February 25, 2016, the FASB issued its new leases standard, ASU 2016-02. The standard marks the end of the Board’s nearly decade-long deliberations with the IASB to address concerns about the current lease accounting requirements.
  • The new standard introduces a model that brings most leases onto a lessee’s balance sheet. This could significantly change the accounting by real estate lessees, whose leases are typically not included on the balance sheet because they are classified as operating leases under current U.S. GAAP. The new standard retains much of the current lessor model but aligns certain of its underlying principles with those of the new revenue recognition standard (ASC 606).
  • The new leases standard will significantly affect lessees and lessors in the real estate industry, including their considerations related to non-lease components, nonlevel rents, initial direct costs, and accounting for sale-leaseback transactions. In addition, real estate lessors will need to understand the ASU’s broader implementation implications for lessees as well as the potential for changes in tenant behaviors.
  • The new guidance is effective for public business entities for annual periods beginning after December 15, 2018 (i.e., calendar periods beginning after January 1, 2019), and interim periods therein. For all other entities, the ASU is effective for annual periods beginning after December 15, 2019 (i.e., calendar periods beginning on January 1, 2020), and interim periods thereafter. Early adoption is permitted for all entities irrespective of whether such entities elect to early adopt the new revenue standard.

This Real Estate Spotlight provides insight into aspects of the new leases standard that are particularly relevant to lessees and lessors in the real estate industry. For a comprehensive overview of the new leases standard, see Deloitte’s March 1, 2016, Heads Up.

View the rest of the Real Estate Spotlight.

March 2016

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