Mike McLain, Transwestern's chief accounting officer

HOUSTON, TEXAS—Buried in the middle of a speech he was giving on international accounting standards in Singapore at the end of May, Hans Hoogervorst, chairman of the London-based International Accounting Standards Board, dropped this bombshell about the revamped lease accounting standard that it and its US counterpart, the Financial Accounting Standards Board, have been working on for years.

“I will not bore you with the details, but more work needs to be done. In the next couple of months we should be able to finalize our work.”

Yes. After eight years and at least one reset in which the boards reissued their exposure draft, it appears IASB and FASB are getting ready to finalize a converged standard for lease accounting.

Or perhaps not. Certainly the industry has heard this before. For the record, Hoogervorst is referring to the exposure draft issued in May 2013, although the industry could be forgiven for having lost track.

The industry could also be forgiven for dismissing Hoogervorst’s comment as so much white noise. Indeed, the accounting industry press that covered his comments focused more on the results of an internal study Hoogervorst also discussed, which found that the lease standard will ultimately only “significantly” affect 10% of listed global companies.

But what if the standard is actually almost here? Without a doubt real estate companies affected by the change that haven’t done even the preliminary groundwork will have to do some fast recalibrating.

In short it is imperative that businesses start preparing now for the coming changes, according comments made by Mike McLain, Transwestern’s chief accounting officer, in the to the third quarter edition of “Ask the Expert.”

His take is that in the best case scenario with final approval by the end of the year, balance sheets would likely be impacted in 2018.

To prepare for the coming changes, McLain suggest companies start thinking about how how lenders will view this information when the debt-to-EBITDA ratio changes.

“They should ask if additional debt on the balance sheet will make it more difficult to borrow money or otherwise affect financing arrangements” he says in the article. “These changes will also require additional record-keeping capabilities. Occupiers may even consider self-funding tenant improvements in favor of shorter lease terms or lower rental rates.”