The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) continue to work on proposed lease-accounting rules that would have far-ranging consequences for apartment firms. Under current law, leases are reflected on balance sheets as income is received. Under the new proposed rules, for the first time, leases lasting longer than 12 months (including optional renewal periods) would have to be placed on the balance sheet upon inception.
If enacted, this change could have an enormous impact on how multifamily firms account for leases. First and foremost, firms would have to modify their lease management software to facilitate the new accounting treatment. Second, firms would have to decide whether to use two different standards: One for leases under a year and another for longer-term leases.
NMHC/NAA are closely monitoring FASB/IASB’s action in this area. The rules were originally set to be finalized in June; however, FASB/IASB recently acknowledged that the deadline will not be met. Many observers believe that the rules will be completed by December, but it is unlikely they will be made effective before 2013. Importantly, although the Securities and Exchange Commission generally relies on FASB-a non-governmental body-to set accounting standards, the SEC is the final arbiter of any rules.