Commercial real estate tenant representation firm, Cresa, and Financial Executives Research Foundation (FERF), the research affiliate of Financial Executives International, revealed the results of a survey focused upon the proposed lease accounting changes to the current FASB / IASB standards.

The research was underwritten by Cresa and conducted by Ventana Research and FERF in the first quarter of 2014, and included responses from representatives of 100 U.S. companies.

“Many companies will report net income results which will be worse under the new rules than under the current rules”

Key findings of the survey include:

• Almost all (90%) of the companies will see some impact on their balance sheet. Many will register significantly negative changes in the capital ratios.
• A large majority (85%) of the companies – both lessors and lessees – also expect the proposed changes will have a negative impact on the economics of their business.
• Respondents estimate the ongoing cost of compliance will average 62 basis points (bp) – 56bp for larger companies and 67 bp for small and midsize businesses. This represents approximately $5.6 million annually for a company with $1 billion in revenues.
• A majority of the companies do not believe the proposed changes will benefit shareholders.
• More than a third (34%0 say the proposed changes will have a negative impact on the accuracy and transparency of financial statements. Forty-six percent of those who have performed a formal review of the impact of the proposed rules expect the changes will distort balance sheets.
• Most think the proposed rules will increase audit and compliance costs.
• Almost all larger companies will need to modify existing information technology (IT) systems; nearly two-thirds anticipate needing new software.