Browse Tag: Financial Accounting Standards Board

NAR Commercial Podcast: FASB Lease Accounting Update, TRIA Up For Reauthorization

NAR's Bill ArmstrongIn the latest NAR Commercial Podcast, Bill Armstrong brings us up to date on new developments in lease accounting and on terrorism insurance legislation.  The highlights:

FASB/IASB Lease Accounting: Is The Straight Line Expense Method In The New Rules? 

The Federal Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) will be reissuing a set of proposed rules for lease accounting. Known as an exposure draft, the proposed rules are sked to be issued in May. It’s been two and a half years since the original rules were issued in August 2012.  While not a done deal yet, it looks as though FASB  and IASB are moving toward a straight line expense method, which is similar to the current lease accounting rule.

We don’t know exactly what will be in the draft, said Bill,  but all indications appear that straight line accounting method is preferred by both boards. And that would be very good news for commercial REALTORS®.

On the other hand, the boards are also moving to capitalization of leases, except for leases of less than 12 months. The capitalization of leases could be problematic for property owners,  because more bloated balance sheets could appear as larger debt with could hurt financing opportunities among other things.  As the new proposed rules are released in May, you can be sure NAR will be the first to comment on these rules, as NAR wants to ensure the rules accurately depict the unique character of commercial real estate.

TRIA Terrorism Insurance Legislation Up For Renewal

Bill: “I’d like to touch on a new piece of legislation that’s been introduced that provides for risk insurance for business in the event of an act of terrorism. The attacks of 9/11/01 not only had a profound effect on our nation’s spirit, but they also produced an enormous economic impact., the loss of a million jobs, the delay or cancellation of $15 bilion in real estate transactions, and a 6-year low in commercial construction.  Out of the nation’s loss, the Terrorism Risk Insurance Act (TRIA) was enacted in 2002. TRIA protects consumers, business, the overall economy and nation by providing adequate levels of property and casualty insurance for the nation’s small and large businesses in the wake of a catastrophic terrorist attack.

The program has helped protect billions of dollars in new construction and created thousands of new jobs. Reauthorized twice in 2005 and 2007. TRIA is set to expire at 2104 unless Congress act to reauthorize.   In fact, the looming expiration date has already begun to affect the availability of some commercial loans.  Just last month, Rep Michael Grimm of NY and other House lawmakers introduced legislation to reauthorize the program through 2019.

Bill: “This legislation must be passed. Without TRIA, the private insurance market won’t pick up the slack. Here’s why: terrorism is a unique, man-made risk that’s impossible to predict in terms of timing, location or magnitude of attack. In short, major terrorism isn’t an insurable risk, at least not for the private sector. Nearly all isnurers wil exclude terrorism coverage for large or high-profile commercial riss. Only the federal government is aware of an can fully protect against terrorist threats. In addition, only the government has the capacity to provide the needed levels of this type of insurance. Without it our economy, jobs and well-being will remain vulnerable to terrorists who hope to destroy us financially.  That’s why its so important that TRIA be reauthorized. Reauthorization means coverage will continue so that business wil continue.

Follow the jump for the complete Bill Armstrong podcast.

 

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CCIM’s Bill Milliken Talks Legislative Involvement

MAR President Bill Milliken, CCIM
MAR President Bill Milliken, CCIM

At the CCIM Institute, Bill Milliken, President of the Michigan Association of REALTORS®  works with the CCIM Legislative Affairs Department on legislative and policy issues.  Bill sat down to talk about legislative advocacy in the CCIM Podcast ahead of the CCIM’s April 10th Capitol Hill Visit.  The highlights:

What are some of the issues CCIM members plan to bring to up to Capitol Hill?

Bill: With the benefit of CCIM and IREM staff, we’ve got tremendous research that comes along with us on Hill visit. A lot of data is at our  disposal. We’ve got  a handful of issues.

Credit Union lending Cap — Credit Unions have been restricted to lennding 12% of their total assets. We’d like to see that double to help fill some of the the lending shortage in the market place.

There’s another [issues] called the Marketplace Equity Act.  That goes to internet sales tax losses that are experienced around the country by states and the federal government. When an internet sale takes place and there is no sales tax collected on it, the consequence of that here in Michigan alone is about $225 million a year in lost revenue from internet sales. There are a lot of units of government that are looking at that and were interested in talking to legislators about it.

Lease accounting [Meaning FASB’s proposed rules — see The Source on NAR’s recent advocacy on this issue –Editor]

You’re a  longtime supporter of the REALTORS® PAC (RPAC). What role does RPAC play in advocating for CCIM members?

Bill: Boy, RPAC has become increasingly important,  especially over the past couple of years. There was a Supreme Court decision called Citizens United that opened the floodgates for [campaign] funding, coming not from corporations but from wealthy individuals and other independent groups. Our group, RPAC, is a way that REALTORS® can get some footing and have some parity with the money thats flooding into the political process. In Michigan,our RPAC arm interviews each state candidate and makes endorsements based on how those candidates represent REALTOR® interests. The importance of donating to RPAC through CCIM or our state associations have never been more important.  No matter what you think of money in the political process, it’s part of it, and this is how we get our voices heard.

What advice would u give to someone who wants to get involved in legislative advocasy at the state or federal level?

Bill: One is to respond to the NAR’s calls for action.  Those are responding to issues in Congress in Washington, where voices need to heard.  We’re all linked up electronically to those calls of action. When you see those, its time to respond and sign in and make your voice heard.

Another way to do it is an investment in RPAC, the REALTORS® Political Action Committee. We had a goal in Michigan last year to raise $425,000 statewide. We exceeded that, raising $450,000 and we put that to very good use. CCIM’s Hill Day is on April 10th. That’s what we’re going to be doing this spring. Last year we had 265 CICMs and IREM representatives that were on the Hill for meetings for the day and its a great way to network and learn the political process.

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Getting To The Bottom Of The Proposed Lease Accounting Rules Changes

Illustration of new lease accounting

As we’ve written about before, recent proposed changes to accounting standards would have enormous impact on commercial real estate leases.  NAR has been on the forefront of calls to ensure proposals do not adversely impact our industry.

What might not be clear is that these changes impact not only commercial real estate, but all commercial leasing in general.  That means that our industry is one of a set of industries that do business using leases and for whom these accounting standards changes would bring major changes to business and markets.

While reading up on the impacts to commercial real estate first and foremost will get you caught up on the impacts to our industry, you don’t need to stop there.  The Federal Accounting Standards Board, FASB,  the body who is undertaking the proposal to make the accounting changes, has made public over 800 comment letters from around the world on the matter of lease accounting standards changes.

The renting of everything from trucks to planes to equipment, the markets for life insurance, the use of service contracts are all potentially touched by these proposed standards changes.  With over 800 letters to choose from, FASB has done us a valuable service in collecting in one spot so many voices from the business communities that depend on leases and their accounting rules. Reading through the comment letters shows in how many ways these accounting rules changes, if adopted, can wreak havoc on a wide set of industries and produce negative consequences far beyond the ills the changes are meant to address.