Impact of Lease Accounting Standard Unclear, PwC Partner Says

Tom Wilkin, partner at PwC, joined REIT.com for a video interview at REITWise 2016: NAREIT’s Law, Accounting and Finance Conference at the Marriott Marquis in Washington, D.C.

Wilkin discussed the impact of the Financial Accounting Standards Board’s (FASB) new lease accounting standard. Issued in February, the new standard will not have a significant impact on lessors, Wilkin said: “Landlords are to a large extent unaffected.”

The impact on lessees, however, is less clear, he said.  Specifically, it could change their general approach to negotiating leases, according to Wilkin.

According to Wilkin, FASB and the Securities and Exchange Commission (SEC) targeted lease accounting as an area where there were significant off-balance sheet transactions and potential abuses. “They viewed those as a significant issue that had to be fixed,” he said.

Meanwhile, Wilkin commented on FASB’s credit impairment standard, which is reaching the final stages of completion. The standard will alter how entities measure and recognize credit impairment for certain financial assets.

FASB’s standard is looking at more of a lifetime loss model, according to Wilkin. This is addressing the biggest concern the SEC had, which is the perception that financial institutions were too slow in recognizing losses in the heat of the 2008 downturn, according to Wilkin.

Property REITs are probably not going to feel much impact from the new standard, Wilkin said. However, mortgage REITs connected to higher-risk securities will have more of an issue, according to Wilkin.