To provide the capital markets with better insights into corporations’ financial status, in 2016 the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) changed accounting rules so that in the near future, companies will show virtually all leases on their balance sheets. This simple — some would say elegant — solution initiated a planning and preparation process many companies are just beginning to understand.
Currently, some companies do not have a database that includes all lease documents. That’s required-fix number one. Further, the new standards reinforce the need for companies to identify and record embedded leases, which are contracts that, while not using a lease format, do however convey the right to use an asset. These are sometimes found in service agreements and other contracts. Also, companies will need new lease abstracts that provide the key decision-making information for managing leases within the new standards. CRE’s database software will need updating to accomplish much of the new lease administration work ongoing. And working arrangements will need to be established with other departments involved in the financial reporting process. This is a lot of work! Luckily, most of it relates to making the transition to the new standards and needs to be done just once, although some new reassessment requirements are included in the new rules.
The beneficial part of the new FASB-IASB leasing accounting process is that it will compel collaboration by the real estate and finance departments. Corporate staff units tend to guard their turf. But under the new standards, CRE staff will be engaged in providing lease data that after some manipulation will be published in the quarterly financial statements by another unit and contribute to Wall Street’s ongoing evaluation of the company. This is a bit of CRE-Finance integration and convergence that could have far reaching implications for CRE. Consider these:
CRE lease administration personnel will need to be well trained. And the internal process for the work will be subject to periodic audits. There’ll have to be a level of trust between the two departments. The reporting link between CRE and Treasury will have to be seamless. There certainly will be periodic cross-unit conversations requiring working relationships between elements of the two staff groups. And future staffing discussions involving potential outsourcing of aspects of CRE will have to account for CRE’s public reporting contributions.
Your professional association, IAMC, is deeply involved in supporting members to make the transition from the old lease accounting standards to the new. For instance, early in 2016 we convened the 12-person, multi-disciplinary FASB Lease Data Standards Task Force to document a process for getting CRE departments up to speed for the new standards. The working group included Active members, Associate member service providers and a public accountant.
The Task Force’s work has already served as input for a Cleveland Forum Research Roundtable and a workshop, two Indianapolis Forum workshops and a soon-to-be-published white paper. A few weeks ago, we set up another working group to learn about commercial services that use artificial intelligence software to abstract leases for the new accounting standard. This work will become a Tampa Professional Forum workshop in April.
Best regards,Russell Burton
This article is excerpted from the Oct. 9, 2016, Indianapolis Professional Forum Research Roundtable program.
Thanks to today’s advanced technologies, corporate real estate is expected to undergo a metamorphosis. Dashboards are just the beginning — 3D models and virtual reality are revolutionizing site tours. Visualization tools, text analytics, and machine learning are streamlining decision-making processes and increasing corporate real estate teams’ productivity.
Justin Chambers, Co-Founder, ii2a; Patricia Becker, Director, Account Business Intelligence Programs, Jones Lang LaSalle; and Shannon Blaylock, Analytics Technology Platform Lead and Business Relationship Manager, Cushman & Wakefield, discussed how various technologies can be used to support the corporate real estate sector.
Technology is transforming corporate real estate
Deloitte has predicted that thanks to technology, corporate real estate (CRE) will undergo a metamorphosis. Justin Chambers described several examples of technologies available today that can be utilized in CRE:
Analytics and business intelligence tools are user-friendly enough for business analysts to use
Patricia Becker offered insights based on Jones Lang LaSalle’s experience with analytics:
Different tools are needed to support analytics.
Jones Lang LaSalle is utilizing tools to support analysis and decision-making in several different areas:
Global HVAC dashboard. Managing a dashboard for every property is too much for a single energy manager to handle. In response, a business analyst created a global dashboard that displays every HVAC unit and the number of hours of variance for each unit.
Facility utilization analytics. Some businesses measure utilization via occupancy. Companies that can quantify real-time utilization can decrease their real estate footprint, resulting in savings. Mobile sensors can be temporarily deployed in buildings, badge-swipe data can be collected, or observation studies can be used.
In corporate real estate, machine learning can automate the lease abstraction process and answer key business questions
Shannon Blaylock noted that machine learning is part of the data science field built on artificial intelligence theories enabling computers to learn without being explicitly programmed to do so. There are three types of machine learning:
Supervised. This relates to the classification of data.
Unsupervised. This relates to the categorization of data.
Reinforcement learning. This relates to the positive identification of sequential events.
In CRE, machine learning can automate the lease abstraction process, resulting in faster cycle times, fewer errors, reduced risk and a more robust audit capability. New FASB standards enforce the need for better accuracy of lease document abstraction.