New IBM Smarter Buildings Analytics to Help CFOs Prepare for Major Accounting Shift

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Friday, March 2nd 2012
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ARMONK, N.Y., March 2, 2012 /PRNewswire/ -- IBM (NYSE: IBM) today introduced new analytics software to help Chief Financial Officers and real estate executives accelerate preparedness for pending compliance rules for leased assets. More than 92 percent of senior executives surveyed in a new IBM study say they're not yet prepared to address these changes.

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Proposed accounting rules from the U.S. Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB), expected to be finalized in 2012, will require a company's leased assets – such as real estate, vehicles and other equipment – to be added to their balance sheet as a capital asset.

This means S&P 500 companies, for example, would have to list the value of their leases on the balance sheet, weighing them down with an estimated average of more than $1 billion in new assets. The pending regulation has the potential to dampen their financial performance as expressed in debt/equity ratios and return on assets. The U.S. Securities and Exchange Commission (SEC) estimates the impact of these changes may approach $1.25 trillion dollars for U.S. publicly traded companies.(1) 

IBM today is issuing new software to help companies manage this major accounting change. IBM TRIRIGA software has new analytics that delivers visibility into balance sheet and income statement impact; financial assumptions and audit controls for both real estate and equipment leases; and automates management review and approval processes, specifically to help companies navigate the proposed regulation.

The new software also delivers strategic facility scenario modeling to increase return on leased real property assets. With a global view, the software can:

  • Provide operational controls such as critical date alerts, payment processing and financial assumptions for leased real estate and equipment assets in a single technology platform.
  • Provide balance sheet and income statement analysis of complex real estate lease decisions, such as 10 years with two renewal options versus 20 years, for instance.
  • Help predict future demand for space and display gaps between demand and availability of real estate space.

These types of analytics are critical as an IBM study issued today shows 92 percent of those surveyed believe they are not prepared to implement the pending rules. The IBM survey, conducted by CFO Research Services, a research group sponsored by CFO Publishing, polled 179 senior executives from global companies with revenue in excess of US$1 billion.

Survey Highlights Lease Accounting Challenges

The IBM survey indicates the proposed rules will require considerable changes to companies' operating and finance strategies. Seventy-nine percent anticipate moderate or substantial changes to accounting policies, processes and practices, while a majority also expects related operational strategies for real estate (53 percent). Sixty-three percent of companies expect changes in information management systems to comply with the pending rules.

Specifically, the new survey, "Beyond the Balance Sheet: Opening the Book on the New Lease Accounting Standards" also found that: