Last year as 2024 approached, I worked with the team at CoStar Real Estate Manager to divine the most important trends affecting lease accountants.
We settled on four key indicators:
- Interest rate volatility
- ESG
- The accountant shortage
- Critical audit matters
So were we right? As 2024 draws to a close, it’s only right to check.
Challenges of Interest Rate Volatility
What we said: We agreed with the Fed at the time that core inflation is still far from the ideal 2% target, which may trigger additional policy firming.
Furthermore, we believed these factors may lead to even more interest rate volatility for 2024.
Did we get it right?: The consensus seems to be that the “peak interest rate era” is finally over, and we’ll see a gradual and stable cutting for key rates both in the US and globally. A lower-rate environment with significantly reduced pressures from inflation is good news for everyone, especially lease accountants dealing with IBR-related calculations.
ESG Data Disclosures
What we said: Although ESG has been and continues to be a hot topic, we looked specifically at how data reporting for lease accountants via double materiality – the concept of accounting for both internal impact to the bottom line as well as external impact to the environment.
Did we get it right?: While double materiality still is an important aspect of climate accounting/reporting, many organizations have been in no-man’s land waiting on crystal clear guidance from their governing bodies on how to proceed.
A recent survey of accountants shows that the those considering climate reporting to be “not at all important” has more than doubled since 2021. Clearly, more clarity is needed going forward.
Shortage of Accounting Talent
What we said: It’s been well-covered that the profession is at a turbulent level, with many leaving it due to burnout, repetition and a general feeling of not being valued enough. We noted that ASC 842 created a significant opportunity for accounting teams to engage in data analysis and offer more value to the business.
Instead of mere transactional reporting of leases, accountants can now play a more pivotal role. With the right technology system in place, they can analyze leasing cost centers across the organization and identify opportunities to reduce spending.
Did we get it right?: The talent drain seems to continue unabated, with one recent article stating that the field “is on the brink of extinction”. There at least seems a consensus that it’s prudent for firms to make it easier for new people to enter the field, with “career path accelerator” programs beginning to gain traction.
Critical Audit Matters
What we said: Auditors have begun to document critical audit matters (CAM) related to lease accounting – specifically in the areas of asset impairment, fair market value (FMV) and IBR.
Did we get it right?: This continues to grow in importance for lease accountants, especially those operating for retail businesses where valuations for the market price of real estate or sudden operating/cash flow losses can lead to a heightened risk of identifying impairment indicators for audits. Mastering this complexity will be increasingly critical.
Looking Forward
We feel pretty good – interest rate volatility predictions aside - about what we put the spotlight on for 2024!
As for the road ahead, we’re keeping an eye on the evolution of office real estate, real estate impacts to the job market and CRE credit trends – among other things.
The path forward looks to be as interesting and tumultuous as it’s ever been. Companies that are strategically-prepared and ready to invest in the people and tech tools needed to navigate it are well-positioned to make it through 2025 in good shape.
