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Leasing toolkit: Getting lease measurements/modifications right · PwC's accounting podcast

• 0:00
  SPEAKER_02: Thought Leadership from PWC.
• 0:07
  SPEAKER_01: Welcome to PWC's Accounting Podcast.
• 0:10
  SPEAKER_01: I'm Heather Horn.
• 0:12
  SPEAKER_01: Thanks for tuning in to a brand new Toolkit series this month.
• 0:16
  SPEAKER_01: In this series, we take a deep dive each month into a single topic, recapping the basics, but also focusing in on frequently asked questions and judgmental areas.
• 0:27
  SPEAKER_01: Today, we're launching a focus on leasing for the month of June.
• 0:31
  SPEAKER_01: This series will have some helpful information for private companies that are in their year of implementation, and we'll also go through some of the most common and difficult questions that we hear from clients on the topic.
• 0:43
  SPEAKER_00: I just want to start with kind of applying the least modification, like what it means to have a lease modification, because that's new with the new guidance.
• 0:53
  SPEAKER_00: So it's a full remeasurement event.
• 0:55
  SPEAKER_03: So reassessing a lease term is kind of a big deal.
• 0:59
  SPEAKER_01: My guests today are Suzanne Stefani and Mark Jerusalem from PWC's National Office.
• 1:05
  SPEAKER_01: They're going to kick off the leasing series with a focus on the hot topics, the most common questions we get that have an element of judgment and nuance within the guidance.
• 1:16
  SPEAKER_01: Frequent listeners will remember Mark and Suzanne from previous podcasts.
• 1:20
  SPEAKER_01: Together, they're a dynamic leasing powerhouse, so you'll want to listen all the way through.
• 1:28
  SPEAKER_01: I do have a quick sidebar for you though before we get started.
• 1:32
  SPEAKER_01: If you're a frequent listener, you know that we strive to put the most timely and relevant content in your queue each week.
• 1:39
  SPEAKER_01: Our goal is that this podcast is an excellent resource for people who want to stay at the forefront of the dialogue in the accounting, reporting, and broader business issues impacting their companies.
• 1:51
  SPEAKER_01: So, with that in mind, we show up for you every Tuesday and Thursday afternoon, and sometimes more often, so to maximize your personal benefit from the podcast, we definitely recommend following the series wherever you listen to your podcast.
• 2:06
  SPEAKER_01: And make sure to turn on those push notifications so you never miss an episode.
• 2:10
  SPEAKER_01: Now, on to leasing.
• 2:12
  SPEAKER_01: There's a lot to cover, so let's get started.
• 2:19
  SPEAKER_01: So, Suzanne, Mark, welcome back to the podcast.
• 2:22
  SPEAKER_01: It's been a while, but great to have some of our leasing specialists back on.
• 2:26
  SPEAKER_01: You guys are among our most popular topics.
• 2:29
  SPEAKER_01: And today's episode is really going to focus in on some of our hot topics to kick things off, starting with measurement.
• 2:38
  SPEAKER_01: So, Mark, I'll hand it over to you to kind of share some of the key questions that we're getting in that area.
• 2:45
  SPEAKER_03: Yeah, thanks, Heather.
• 2:47
  SPEAKER_03: Well, you know, it seems like measurement is something that should be pretty clear.
• 2:51
  SPEAKER_03: We all know that in order to measure a lease liability, right, you've got to figure out the number of lease payments, right?
• 2:57
  SPEAKER_03: You have to figure out the dollar amounts you're paying for the rents, and you have to figure out the discount rates.
• 3:02
  SPEAKER_03: So one of the things I thought we would talk about today is the types of questions that we get from our clients and from our engagement teams about, you know, about how long is the lease term, about how to determine variable versus fixed rents, and about discount rates.
• 3:17
  SPEAKER_03: Let's start with lease payments, right?
• 3:19
  SPEAKER_03: So we all know the guidance that, you know, if I have fixed payments, the fixed payments go into my lease liability.
• 3:24
  SPEAKER_03: But if I have variable payments, they typically do not go into my lease liability, unless, of course, the variable payments are tied like to an index or a rate, right?
• 3:33
  SPEAKER_03: If they're tied to an index or rate, then they do go into the lease liability using the rate that was there at the commencement date.
• 3:39
  SPEAKER_03: So we're seeing we're getting a lot of questions from both customers and suppliers that appear to be trying to get creative as how to structure payments that they would appear to be variable such that they wouldn't have to go into the measurement of a lease liability.
• 3:55
  SPEAKER_03: And I thought I would give a couple of examples.
• 3:58
  SPEAKER_03: One is a little bit older, one is a little bit newer, just to illustrate the points we've been talking about.
• 4:04
  SPEAKER_03: So a really good example was from the oil drilling industry.
• 4:08
  SPEAKER_03: Okay, and the oil drilling industry said, look, we have a variety of different rates that we could charge our customers.
• 4:15
  SPEAKER_03: So if we are drilling in the ocean, let's say offshore drilling, then if you're actually drilling on Monday, that would attract a certain rental rate, a fixed rent for drilling, right?
• 4:27
  SPEAKER_03: But if you're not drilling, but you're moving the ship from one location to another, that would create a different rate for that day.
• 4:35
  SPEAKER_03: So I'd have two different rates already.
• 4:38
  SPEAKER_03: And then there are days that the customer decides he is neither drilling nor is he moving the ship, it's just going to sit idle.
• 4:45
  SPEAKER_03: And there's yet a third rate.
• 4:47
  SPEAKER_03: But the really interesting thing was that the contract calls for days when they don't charge any rent.
• 4:55
  SPEAKER_03: And those are days that perhaps the machine has to be maintained or repaired or inspected by government folks, or because the weather is so bad that it's unsafe to be on the rig, right?
• 5:06
  SPEAKER_03: And it's not like those things don't happen.
• 5:09
  SPEAKER_03: What they what the industry told us is that in every contract, there are a considerable number of days that they cannot charge rents.
• 5:16
  SPEAKER_03: Right.
• 5:17
  SPEAKER_03: So one of the thoughts is that, well, perhaps because there are days, right, that the equipment has to be maintained or inspected or whatnot, that the minimum fixed rate is actually zero.
• 5:31
  SPEAKER_03: And anything north of zero is just a variable rent.
• 5:34
  SPEAKER_03: Okay.
• 5:35
  SPEAKER_03: And it was a very good question.
• 5:37
  SPEAKER_03: And uh, you know, the large firms considered that question.
• 5:40
  SPEAKER_03: And I think the the thought across the board was that we're not going to define variable rents by using criteria that are simply protective in nature, right?
• 5:51
  SPEAKER_03: So if you're telling me, listen, I if there's a day that I can't use the asset because the weather's bad or because it's going to be inspected, or because I've got to take it offline to be maintained, that is not going to be the floor from which to determine variable rents.
• 6:04
  SPEAKER_03: Instead, variable rents would be determined based on the activities that the lessee could choose to do.
• 6:10
  SPEAKER_03: So it's not necessarily the highest rate, right?
• 6:12
  SPEAKER_03: But if there's a rate where the lessee says, I'm not going to use this asset today because I don't know what I'm doing yet, right?
• 6:17
  SPEAKER_03: Maybe that is the lowest rate.
• 6:18
  SPEAKER_03: Maybe that's the fixed rate, right?
• 6:21
  SPEAKER_03: So one of the takeaways is don't think of fixed versus variable rents by looking solely at protective features in the contract.
• 6:29
  SPEAKER_03: Okay.
• 6:31
  SPEAKER_03: Um another one that we've seen more recently, and I'll be frank with you guys, this is a little bit less developed because it's something that's happening now, is that a lot of companies, of course, are trying to become more energy efficient.
• 6:44
  SPEAKER_03: And they're buying and financing new assets, right, to help them do so.
• 6:49
  SPEAKER_03: And sometimes suppliers are providing these assets with um creative structures, right?
• 6:56
  SPEAKER_03: And in some cases, there are rebates due to the customer if uh I'll say if the um asset does not operate as efficiently as people hope it would.
• 7:07
  SPEAKER_03: Okay.
• 7:08
  SPEAKER_03: And so on this one, I think we do have to be careful because sometimes it is difficult.
• 7:11
  SPEAKER_03: We have to look at the facts and circumstances.
• 7:13
  SPEAKER_03: Sometimes it's difficult to isolate those things that are true, like weather dependent, like how much the sun shines, versus something that doesn't really seem substantive.
• 7:23
  SPEAKER_03: Like, you know, if everything's doing okay, this asset is supposed to work the way it's supposed to work.
• 7:29
  SPEAKER_03: If I if I have a lower payment because the asset's not working the way it's supposed to, I would not consider that for a base for variable rents.
• 7:37
  SPEAKER_01: So, Mark, I have a question for you because you've prefaced this with saying that there's interest uh on both sides for people trying to kind of push rents into variable.
• 7:48
  SPEAKER_01: And when you said that, reminded me of sort of under FAS 13, when there was sort of a whole industry focused on not crossing any of the bright lines in FAS 13, so you didn't get to capital lease.
• 8:00
  SPEAKER_01: And these two examples I think are good ones to remind us of some of the principles.
• 8:05
  SPEAKER_01: So I'm going to come back and ask you to reiterate those principles.
• 8:09
  SPEAKER_01: Put aside structuring, there are contracts where legitimately the rents are variable and they should be treated as such.
• 8:15
  SPEAKER_01: And I know that's your experience as well.
• 8:18
  SPEAKER_01: So, you know, how does that fit into this picture of what we're talking about?
• 8:23
  SPEAKER_03: Well, yes, I mean there certainly are industries and and many arrangements that we've seen where um the structure is variable rents and it suits both sides.
• 8:33
  SPEAKER_03: Um, we do see a lot of like solar panels on residents that it truly is variable rents, right?
• 8:39
  SPEAKER_03: And there's no problem with that.
• 8:41
  SPEAKER_03: Um, we've seen also medical devices where the chargers are basically per procedure, which suits both parties because it's only upon doing the procedures that the hospitals can charge and make their own revenues on this.
• 8:54
  SPEAKER_03: So in many cases, variable rents you know make perfect sense.
• 8:58
  SPEAKER_03: Um, the other thing is it's also a little bit self-governing in that if something, if the type of arrangement truly should have fixed rents, let's say, right, neither the supplier nor the customer are often willing to take the risk of having only variable rents, right?
• 9:14
  SPEAKER_03: So think of a retail store, which the rents tend to be much more toward the fixed end of the spectrum, right?
• 9:21
  SPEAKER_03: So um I'm just talking about some of the observations we've seen on the structuring of variable rents, but there certainly are a lot of variable rent structures that it's true variability and and it is what it is.
• 9:32
  SPEAKER_03: And they're kind of variable rents.
• 9:34
  SPEAKER_01: And then I think you mentioned these, but again, just to kind of close the loop on this, as you're thinking about these types of leases, what are sort of the key principles that you're looking at?
• 9:46
  SPEAKER_03: Right.
• 9:46
  SPEAKER_03: So if the we look to the underlying nature of the variability, right?
• 9:50
  SPEAKER_03: If the variability is due solely to protective type provisions or to situations where the assets not working as intended, we would look at those more closely to see whether or not they're variable or fixed or should be ignored, you know.
• 10:06
  SPEAKER_01: All right, very helpful.
• 10:07
  SPEAKER_01: So then let me um, Suzanne, bring you into the conversation.
• 10:10
  SPEAKER_01: And this is gonna be sticking with lease payments, but looking at it with a little twist, which would be thinking about lease incentives.
• 10:17
  SPEAKER_01: And I know that we're getting a lot of questions on how to account for those when the incentive is going to be received after the lease starts.
• 10:25
  SPEAKER_01: Uh so how do you think about that?
• 10:28
  SPEAKER_00: Yeah, and I should say the questions usually come up with real estate leases.
• 10:33
  SPEAKER_00: So it's, you know, it's it's common in real estate leases that the lessor will give the lessee money to kind of move into their space.
• 10:41
  SPEAKER_00: And a lot of times um the the incentives are related to putting in leasehold improvements.
• 10:47
  SPEAKER_00: So maybe if I could just give a quick example, kind of a typical thing we see and the questions we've been getting.
• 10:53
  SPEAKER_00: So let's say a lessor agreed, you know, to reimburse the lessee up to 100,000 for leasehold improvements, like lessee assets.
• 11:02
  SPEAKER_00: So when they move into the building.
• 11:04
  SPEAKER_00: So the lessor is essentially giving the lessee money to buy their own assets, maybe like carpeting or painting, things like that.
• 11:11
  SPEAKER_00: So the the way they usually work is the lessee is gonna pay for the leasehold improvements up front, get the receipts and give them to the lessor and get reimbursed.
• 11:20
  SPEAKER_00: And then usually it's up to a certain cap.
• 11:22
  SPEAKER_00: So let's say it's a hundred thousand and they have a usually have a time frame too.
• 11:26
  SPEAKER_00: We'll say it's a year.
• 11:27
  SPEAKER_00: They have a year to submit the receipts and get reimbursed up to that cap of a hundred thousand.
• 11:32
  SPEAKER_00: So the question we get is how should that hundred thousand in my example that they expect to get within one year be accounted for?
• 11:41
  SPEAKER_00: Does it impact the initial measurement of the lease liability?
• 11:44
  SPEAKER_00: Is it like a separate receivable from the lessor, or is it some sort of variable lease payment?
• 11:50
  SPEAKER_00: Um so generally I would say it should impact the initial measurement of the lease liability.
• 11:57
  SPEAKER_00: And that's because if you think about it, most of most think of this type of these types of incentives as in substance fixed at commencement.
• 12:06
  SPEAKER_00: Because the lesse just negotiated, in my example, to get 100,000 for leasehold improvements, it's not likely that they're only gonna spend 90 and just kind of leave 10,000 on the table, right?
• 12:18
  SPEAKER_00: They want to make sure they get they spend the whole amount, they're buying their own assets.
• 12:21
  SPEAKER_00: So that's why we usually think of them as in substance fixed.
• 12:26
  SPEAKER_00: So then when you think about the lease liability and the initial measurement, it's the present value of all fixed and in-substance fixed lease payments.
• 12:36
  SPEAKER_00: And when you look at the definition of lease payments in the guidance, it includes lease incentives.
• 12:41
  SPEAKER_00: So that's why we'd say it's best to include that incentive as like a negative, like a negative lease payment in the initial measurement of the lease liability.
• 12:50
  SPEAKER_00: So you use the full amount, the hundred thousand.
• 12:53
  SPEAKER_00: And when you're doing your amortization schedule, it'd be a hundred thousand cash inflow in the schedule.
• 12:59
  SPEAKER_01: So, Suzanne, that makes sense, but I see an obvious next question, which is that you don't know exactly when that cash is coming in.
• 13:08
  SPEAKER_01: You know you're gonna get it, you know the general range.
• 13:10
  SPEAKER_01: So how do you think about that?
• 13:13
  SPEAKER_00: Yeah, so at commencement, the lessie would have to estimate when they think they're gonna get this reimbursement from the lessee, from sorry, from the lessor when they're building that schedule.
• 13:24
  SPEAKER_00: So let's say in in my example, the lessie thought they were gonna get all of the money, and maybe it was just one big leasehold improvement or something, they were gonna get all of the money in six months.
• 13:34
  SPEAKER_00: So when they're doing their amortization schedule, they'd put a hundred thousand as being received in the in six months from commencement.
• 13:42
  SPEAKER_00: Again, a negative payment.
• 13:43
  SPEAKER_00: So it's just it's just yeah, I get that you won't know exactly when you're gonna get it, but you should make your best estimate of when you expect to get it.
• 13:51
  SPEAKER_01: All right.
• 13:52
  SPEAKER_01: So anytime we're dealing with estimates, actuals can always turn out differently.
• 13:56
  SPEAKER_01: So what do we do in the case that say you guess six months and it actually turns out it's 12 months, which maybe isn't that big a deal, but what if you guessed a year and it was much longer than that?
• 14:05
  SPEAKER_01: You know, the Yeah.
• 14:07
  SPEAKER_00: Yeah, like yeah.
• 14:08
  SPEAKER_00: So if it you're right, maybe it's not doesn't have a material impact if it's just off by a month or or so.
• 14:14
  SPEAKER_00: But but if it had a material impact, then um we'd analogi to the least remeasurement guidance and essentially re-measure the least liability for that change in timing.
• 14:25
  SPEAKER_00: But when you do that, that remeasurement, we're gonna use the same discount rate that they that you used at least commencement.
• 14:33
  SPEAKER_00: And the reason you have to do it is because if you didn't re-measure, then the least liability is not gonna end up at the very end at least term being zero.
• 14:42
  SPEAKER_00: Because you'll yeah, you'll wind up with a balance, right?
• 14:44
  SPEAKER_00: Your mouse is a good thing.
• 14:44
  SPEAKER_00: Yeah, you'll end up like positive or negative, you know, depending.
• 14:47
  SPEAKER_00: So so that's why you have to true it up there, you know, like if it's a material change.
• 14:51
  SPEAKER_01: All right, that totally makes sense.
• 14:52
  SPEAKER_01: So then let me ask you a question.
• 14:54
  SPEAKER_01: Because again, I understand why you said the beginning you're going to um presume it's in substance fixed, because of course no one wants to leave money on the table.
• 15:03
  SPEAKER_01: But what if for whatever reason you conclude it's not?
• 15:07
  SPEAKER_01: Because I'm sure there are some circumstances when you don't reach that conclusion.
• 15:11
  SPEAKER_01: How would you think about the incentive in that case?
• 15:14
  SPEAKER_00: Yeah, so like if there's any portion of that incentive that you don't think is fixed at commencement, again, like you said, not really the norm, but but maybe there's a circumstance, then that portion that that you're not sure you're gonna get is not gonna impact the initial measurement of the lease liability.
• 15:34
  SPEAKER_00: Instead, it's it's sort of like a variable lease payment.
• 15:37
  SPEAKER_00: But once you, but say, you know, you're you're in the lease and and you end up, you do end up buying those leasehold improvements and submitting that for reimbursement uh to the less, or you know, your plans changed.
• 15:50
  SPEAKER_00: Um, at that point, when you when you determine that, you're gonna re-measure the lease liability.
• 15:56
  SPEAKER_00: At that point, it's as if the contingency that that payment was initially based on has been resolved.
• 16:02
  SPEAKER_00: And what you do when a variable payment, you initially had a variable payment and the contingency is resolved, is you have to re-measure the lease liability.
• 16:11
  SPEAKER_00: So at that point, you re-measure.
• 16:13
  SPEAKER_00: Um, again, just not updating the discount rate, but you'd re-measure and you'd all recast the lease expense and everything from that date forward.
• 16:22
  SPEAKER_00: So it's more of a something you do after lease commencement if if your plans change.
• 16:27
  SPEAKER_01: All right.
• 16:27
  SPEAKER_01: I think this is definitely a good reminder for both of these because I could see this as something companies easily miss.
• 16:32
  SPEAKER_01: And then you, to your point, you do get to that end of the lease and you've still got a balance sitting there.
• 16:37
  SPEAKER_01: So, all right, so then let's move on to lease term.
• 16:39
  SPEAKER_01: And Mark, I'm gonna go back to you.
• 16:41
  SPEAKER_01: And I know that the guidance here is similar to the guidance we had under 840, where um, when thinking specifically about renewal periods, we would only include them in our lease term if at least commencement we think it's reasonably certain that the lessee will exercise that renewal.
• 17:00
  SPEAKER_01: And that would be at this, say, you know, reasonably certain relatively high thresholds of 75% or so.
• 17:08
  SPEAKER_01: What are some of the key questions you're getting?
• 17:10
  SPEAKER_01: I'm sure there's many of them.
• 17:13
  SPEAKER_03: Right.
• 17:14
  SPEAKER_03: So you might think, given that you know the guidance in this area is similar to what it was under 840, right?
• 17:20
  SPEAKER_03: Um, you might think that we would not be getting a lot of questions here since you know 840, you mentioned FAST 13 earlier came out in 1976.
• 17:28
  SPEAKER_03: Right.
• 17:28
  SPEAKER_03: Right.
• 17:29
  SPEAKER_03: Um, nevertheless, once again, I think that there's some questions that we got sort of at the beginning of 842, and some more recent questions that I wanted to highlight.
• 17:40
  SPEAKER_03: So specifically, um, one of the things I wanted to highlight, questions that we got a lot of at the beginning of 842, and I'm thinking now that private companies are going to be adopting the standard shortly, right?
• 17:51
  SPEAKER_03: Is situations where both the lessee and the lessor could cancel the lease.
• 17:56
  SPEAKER_03: Or maybe another way to put it is we've seen these leases that are, let's just say, one year long, and after one year, they automatically renew unless either the lessee or the less or says no, right?
• 18:10
  SPEAKER_03: And we've seen that a lot in related party type leases, right?
• 18:14
  SPEAKER_03: And you know, um, private companies have a lot of related party relationships often.
• 18:19
  SPEAKER_03: So I think that one of the I'll say misconceptions or one of the common conceptions is that you know when people think of uh of an option to renew, they think an option is something that I have the unilateral right to do.
• 18:31
  SPEAKER_03: I have this right, right?
• 18:32
  SPEAKER_03: If I want to renew it, I can either say no or I can say yes.
• 18:35
  SPEAKER_03: And if I say yes, the lasso can't stand in my way.
• 18:38
  SPEAKER_03: And so they look at these types of situations where either party can say no and say, well, how can my lease term include that renewal period then?
• 18:46
  SPEAKER_03: Because I don't have unilateral right.
• 18:48
  SPEAKER_03: So the standard actually has some explicit guidance on this that says, look, if both parties can say no, right, then you have to look, you have to evaluate why whether either party, the lessee or the lessor, would suffer an economic penalty by choosing not to renew, right?
• 19:08
  SPEAKER_03: And if either party would, right, then you simply ignore the lessors options.
• 19:15
  SPEAKER_03: So let's take a one-year lease that's gonna have automatic renewals.
• 19:18
  SPEAKER_03: Let's say you're a large bank and you have a separate entity that runs a retail branch, and that retail branch is on the first floor that uh that related party has put in leasehold improvements to make that branch look nice, right?
• 19:32
  SPEAKER_03: And of course they're gonna suffer a penalty if they don't renew because they just put in all those leasehold improvements.
• 19:37
  SPEAKER_03: Once you make that determination, then you ignore the lessors options and you focus solely on the lessee.
• 19:43
  SPEAKER_03: So now all you have to ask is all right, is the lessee reasonably certain to renew when that renewal comes up at the end of one year?
• 19:51
  SPEAKER_03: And if the answer is yes, then you look at the next renewal option and so on and so forth.
• 19:55
  SPEAKER_01: So then, Mark, as I think about this, would the evaluation be symmetrical?
• 20:01
  SPEAKER_03: Symmetrical between like lessees and less ores.
• 20:04
  SPEAKER_01: Yes, exactly.
• 20:05
  SPEAKER_03: That is another question that we commonly get.
• 20:08
  SPEAKER_03: And it's kind of a two-part answer.
• 20:10
  SPEAKER_03: The definition of lease term, there's only one definition.
• 20:13
  SPEAKER_03: So that definition applies to both lessees and lessors.
• 20:17
  SPEAKER_03: So if a lessee should be evaluating whether it is reasonably certain that it will renew, then the lesseurs should also be thinking about whether it is reasonably certain that the lessee will renew.
• 20:28
  SPEAKER_03: In practice, however, while the definition is the same, um what we have found in practice is that lesseurs simply don't have the visibility into the lessee's business to be able to make that same level of certainty, right?
• 20:44
  SPEAKER_03: That the lessee can.
• 20:46
  SPEAKER_03: And we have had a number of questions where a lesseur has asserted, a supplier has asserted, that I think that the lessee will renew this lease.
• 20:55
  SPEAKER_03: And if they renew this lease, it's a finance lease for the lessee, and it'll be a sales type lease for us, right?
• 21:02
  SPEAKER_03: So I think it's going to be a sale today because I think the lessee is reasonably certain to renew for whatever reasons they think.
• 21:08
  SPEAKER_03: And I'll just tell you that I think that we take a look at those situations with a lot of what I'll call auditor skepticism, because it's just, you know, the lessee has chosen not to purchase this asset, but rather to use it for a limited period of time for a reason.
• 21:23
  SPEAKER_03: The lessee wanted the flexibility on day one to be able to get out of this arrangement, right?
• 21:29
  SPEAKER_03: And so we're very hesitant to really believe that lesseurs have such a deep understanding.
• 21:36
  SPEAKER_03: It does happen, it does happen all the time, but we do look at the facts and circumstances because we think that it would have to be pretty obvious to people that the lessee would were to renew.
• 21:46
  SPEAKER_03: There have to be some good economic incentives in there.
• 21:48
  SPEAKER_03: Otherwise, I'd be hesitant for a lessor to make the assertion that uh an optional renewal period should be included in the lease term.
• 21:57
  SPEAKER_01: All right.
• 21:58
  SPEAKER_01: Good advice there.
• 21:59
  SPEAKER_01: So then you were just talking about sort of the day one assessment.
• 22:03
  SPEAKER_01: What are the circumstances or when does the lease term need to be reassessed?
• 22:09
  SPEAKER_03: Right.
• 22:09
  SPEAKER_03: So reassessing a lease term is is kind of a big deal because you know reassessments and modifications would require the require the lessee, let's focus on the lessee for a moment, to update the lease term.
• 22:21
  SPEAKER_03: The lessee would have to think about the relative standalone selling prices of any non-lease components, if there are any in the contract and the lease component.
• 22:30
  SPEAKER_03: And it might may require a reallocation of consideration.
• 22:34
  SPEAKER_03: We mentioned before about variable payments, you know, variable payments tied to CPI typically would not be in the lease liability, but if you're reassessing the lease term, you would bring those current, right?
• 22:45
  SPEAKER_03: And then you'd also have to reclassify the lease.
• 22:48
  SPEAKER_03: You'd have new interest rates.
• 22:49
  SPEAKER_03: Certainly we're in an environment now where interest rates are changing.
• 22:52
  SPEAKER_03: So there's a lot of work and um obviously both lessees and lessors have to reassess the lease term when somebody actually exercises an option, right?
• 23:04
  SPEAKER_03: That kind of goes without saying.
• 23:05
  SPEAKER_03: Right.
• 23:05
  SPEAKER_03: But but I do want to point out that sometimes exercising an option can be a passive thing as opposed to an active thing.
• 23:13
  SPEAKER_03: Because many leases especially real estate leases have notification clauses where the lessees require to notify the lessor by a certain date, let's say nine months in advance.
• 23:23
  SPEAKER_03: And if they don't notify them nine months in advance, then it automatically renews.
• 23:27
  SPEAKER_03: So in that case your lease term assessment is nine months before the end of the lease term, right?
• 23:34
  SPEAKER_03: And that's something that is missed by a lot of people that right um a lessee would also reassess upon a significant event or change in circumstances that is within their control.
• 23:47
  SPEAKER_03: And I'm gonna redirectly one sentence from the standard.
• 23:51
  SPEAKER_04: Okay.
• 23:52
  SPEAKER_03: They're gonna reassess um for significant events or changes in circumstances that are within the lessee's control that directly affects whether the lessee is reasonably certain to exercise or not to exercise an option to extend or terminate the lease or to purchase the underlying asset.
• 24:07
  SPEAKER_03: Okay.
• 24:08
  SPEAKER_03: So the FASP stuck in these words right within the lessee's control.
• 24:12
  SPEAKER_03: Because what they didn't want people doing is saying oh my gosh I'm leasing this space at$20 a square foot today's market prices are$30 a square foot.
• 24:21
  SPEAKER_03: It's a bargain.
• 24:22
  SPEAKER_01: Right.
• 24:22
  SPEAKER_01: Right?
• 24:22
  SPEAKER_03: But I have to reassess when the bargain occurred and the answer is no, you don't but the flip side of that is sometimes lessee will say well you know um this is a bargain now of course I'm going to renew.
• 24:37
  SPEAKER_03: Should I reassess today?
• 24:39
  SPEAKER_03: No.
• 24:40
  SPEAKER_03: Well well what if they say but because I'm going to renew and that's obvious like Mark you're an idiot why don't you see this right because I'm going to renew I'm gonna start renovating my property I'm gonna put in new release hold improvements I'll repaint I'll recarpet.
• 24:53
  SPEAKER_03: Well repainting recarpeting is an action that is within your control so if in fact you started to do that right then it's at that point you would have to do a reassessment even though the underlying reason is because the market rents have become a bargain.
• 25:10
  SPEAKER_01: But I guess Mark in that case like it's actually the renovation that's important.
• 25:16
  SPEAKER_01: So if you were renovating your space even without these market changes would that also trigger that you need to relook at your lease term I think it would, right?
• 25:26
  SPEAKER_03: Because if you're renovating the space and those renovations are expected to last longer than the lease term you're using in your accounting and you have the option to renew, then presumably you've already decided that we get a lot of questions as well as to how deep into the renovations do you have to get and and and you know what I the analogy that I I heard recently that I liked is you got to decide whether you're the pig or the chicken.
• 25:52
  SPEAKER_03: And it's referring to like a ham and egg breakfast right?
• 25:56
  SPEAKER_03: Yes the chicken only you know contributes to the breakfast.
• 26:00
  SPEAKER_03: The pig is committed.
• 26:01
  SPEAKER_03: Yes so if you if you signed contracts with contractors to start punching holes in your walls then yeah I would say you're committed the you know the question is is it exp would it would it cost you money would it be expensive to change your mind from that point on right and obviously it's qualitative and requires of an evaluation right yeah I I like your um I I like your reasoning there.
• 26:23
  SPEAKER_01: So then how about how would we think about whether a lessee should reassess the term and you you mentioned this but I just want to reiterate it when they just decide they want to stay longer or maybe you thought it was you know um assured enough that you included that renewal and now you're saying no no no I've now changed my business and I'm not going to renew how does that sort of fit in with the reevaluation of lease term?
• 26:49
  SPEAKER_03: Again, the one thing I would just say is is changes in circumstances that are well changes in in pricing are are not enough.
• 26:58
  SPEAKER_03: It really takes some kind of a commitment to a plan that would be difficult to undo it would cause a difficulty to undo one thing I should mention here is that this whole reassessment of lease term based on changes in facts and circumstances is only for the lessee.
• 27:12
  SPEAKER_03: The lesseur does not have to look at this and in fact cannot look at this right so thus lesor has to sit and wait for an action to occur right that they have to wait for the either the lease to actually be renewed, get a binding notice a letter or or um a renewal date passes where they haven't gotten the required notice.
• 27:34
  SPEAKER_03: So this is less ease would reassess for changes in circumstances but not lesores.
• 27:39
  SPEAKER_01: Okay so then I and I'm sure there's a hundred questions I could ask here but one because you were talking about retail space and your chicken and egg example or chicken and the pig example what if I'm leasing this retail space five year lease three years in I I close all my stores so I'm closing out of that part of the business I still have two years left.
• 28:00
  SPEAKER_01: So I'm the lessee I'd say okay well I'm pretty committed I I closed the store down I moved all my inventory and everything else.
• 28:08
  SPEAKER_01: Is the left store in that circumstance because now my lessee's actually moved out going to say at a minimum they're not going to renew or do you still have to wait in that circumstance?
• 28:21
  SPEAKER_03: Well just to clarify the question right what we've been talking about is the options to renew or the options to terminate.
• 28:28
  SPEAKER_03: So if you had a five year lease without an option to stop it and you decide to move out after three years that's not a lease term assessment.
• 28:35
  SPEAKER_03: That's an impairment type of an assessment right so but in talking about the optional periods if you in fact know that your lessee has moved out I'll be honest I don't know that I've gotten that question before but the thing that I'd be concerned about from a lesseur's perspective is um how do you know that the lessee won't move back in, won't use it for storage, won't try to sublet it?
• 29:02
  SPEAKER_03: I I just don't know that a lesseur would ever reassess the lease term absent a contractually or legally binding event.
• 29:13
  SPEAKER_01: So then Mark that's very helpful.
• 29:15
  SPEAKER_01: So then what other complications should companies be thinking about when they're considering the or determining the lease term?
• 29:23
  SPEAKER_03: Yes you know sometimes leases are embedded in service contracts or purchase contracts right and so we have seems seen some situations where a company enters into a long-term service contract and they've done a proper evaluation and concluded that that service contract contains a lease okay um and the issue they bring up is that sometimes the length of the service contract is longer than the useful life of the asset that they believe they're leasing.
• 29:51
  SPEAKER_03: So as an example I might have a five-year service contract that uses some um computer equipment that only has useful life of three years.
• 30:00
  SPEAKER_03: So I think that both parties recognize that the supplier is probably going to have to replace the equipment during the service contract period.
• 30:11
  SPEAKER_03: Right?
• 30:11
  SPEAKER_03: So these are typically pretty complicated arrangements.
• 30:15
  SPEAKER_03: I will tell you that we don't account for a lease for longer than the useful life of the underlying asset.
• 30:22
  SPEAKER_03: So if I had a five year contract that's using a three year piece of equipment the lease of that piece of equipment is probably still going to be three years.
• 30:29
  SPEAKER_03: Right.
• 30:30
  SPEAKER_03: But the reality is I probably would have two leases in that perspective in that fact pattern I'm gonna have an initial lease of a of an asset for three years and then in the beginning of year four I'll have a second lease for a similar asset and that would be a lease of two years.
• 30:47
  SPEAKER_03: And you can imagine all the complications you know regarding how to allocate consideration and whatnot that I think is beyond the scope of what we're talking about here today.
• 30:55
  SPEAKER_03: But nevertheless that that scenario where because it's in a service contract and it's only used to support the service contract sometimes the term of the lease and the term of the contract are not the same.
• 31:08
  SPEAKER_01: All right good that's definitely a good reminder here then.
• 31:11
  SPEAKER_01: So then let's move to another topic where I know we got a lot of questions and that would be around the discount rate.
• 31:17
  SPEAKER_01: And for our listeners if you're a private company initially adopting there's definitely a lot of practical expedients that we are going to cover in our other podcast.
• 31:27
  SPEAKER_01: But Mark, I know that you've gotten a lot of questions on determining discount rate you know related to public company transitions and we issued a lot of guidance at that time are you still getting questions in this area other than the private companies we're not getting a lot of questions on interest rates okay just just an anecdotal observation right and I think what that reflects is that initially it was a big deal for companies to develop processes to develop what these interest rates are.
• 31:58
  SPEAKER_03: I think once companies had developed and tested and kicked the wheels of the processes that they that evolved I think they're comfortable with them.
• 32:07
  SPEAKER_03: Nevertheless we still get some interesting questions on discount rates.
• 32:11
  SPEAKER_03: So um the the guidance the guidance states that a lessee would have to use its incremental borrowing rate unless it can readily determine the lesseurs rate implicit in the lease.
• 32:25
  SPEAKER_03: And the rate implicit of the lease is a defined term in the standard so sometimes lessees tell us we know the lesseurs rate implicit in the lease.
• 32:34
  SPEAKER_03: Okay this question came up at the beginning of 842 and has come up again more recently right and so the one thing we're cautious of is that the standard says readily determinable and and the firms have spoken to the FASB and the SEC and it's pretty clear that readily determinable is not the same thing as I can develop an estimate right it means that it should be kind of obvious to everybody or that you really have all the information necessary to come up with that amount.
• 33:02
  SPEAKER_03: So the definition of a rate implicit in the lease right would reflect the lease payments it reflects the amount I'm reading this part the amount a lessor expects to derive from the underlying asset following the end of the lease term and you'd have to know the initial direct costs of the lessor.
• 33:21
  SPEAKER_03: So it's unlikely that a lessee is going to know either the initial direct costs of a lessor or the amount that he expects the asset will be worth at the end of the arrangement.
• 33:32
  SPEAKER_01: So then Mark, what about just asking the lessor right so we actually expect that we've always expected lessees would ask the lessors.
• 33:43
  SPEAKER_03: Right.
• 33:44
  SPEAKER_03: What's the rate implicit in the least we also expect that in most cases the lesores are not going to give them the recipe to the secret sauce.
• 33:51
  SPEAKER_03: Exactly so I don't know how successful that would be but a few interesting observations is that sometimes a lessee has told us we've asked the lesseur and the lasso told us the rate is X.
• 34:04
  SPEAKER_03: And then when we think about what they've heard from the Lessur, we're not sure that that really is the rate implicit in the lease.
• 34:11
  SPEAKER_03: Sometimes I think lessours may give them their internal rate of return.
• 34:16
  SPEAKER_03: And an internal rate of return is not the definition right rate implicit lease is a defined defined term.
• 34:23
  SPEAKER_03: So a couple of things to be careful of right one of the observations that came up is that the rate implicit of the lease considers what the assets could be worth at the end of the lease.
• 34:34
  SPEAKER_03: And one of the questions is especially with real estate leases is could the residual value ever be worth more at the end of the lease than it was at the beginning of the lease or said another way we expect that the property values in San Francisco are going to increase can't I include the effects of inflation on my residual value?
• 34:54
  SPEAKER_03: Right?
• 34:55
  SPEAKER_03: That would certainly be part of their investment decision would certainly be part of their you know rate of return but it's not part of the the rate implicit in the lease we would always ignore inflation or we we believe that you should ignore inflation it's inconsistent with the Lisa standard.
• 35:11
  SPEAKER_03: Remember if the payments go up for inflation we also ignore those right um the standard says in several instances that you're supposed to consider facts that are on the ground so to speak at least commencement and not changes in circumstances that occur later.
• 35:27
  SPEAKER_03: So I don't think that we would typically accept um a rate implicit in the lease that depends upon let's say the value of the leased land actually increasing over time.
• 35:39
  SPEAKER_03: The second observation is that we've seen this also with a lease of land and building okay and remember the standard basically says that land and building are always two lease components unless accounting for them is two or one makes no difference effectively right so if a lessor says that the rate implicit in the lease of land and building is X, I guess one of my questions would be I've got two different lease components.
• 36:06
  SPEAKER_03: One is a depreciating asset that's going to go down in value over time.
• 36:10
  SPEAKER_03: One is a non-depreciating asset that I could accept might stay at the same value over time right should I really have the same rate implicit in the lease for both of those two assets with two very different depreciable lives or the case of land without a depreciable life.
• 36:27
  SPEAKER_01: Right.
• 36:28
  SPEAKER_03: I I would just be suspect.
• 36:30
  SPEAKER_03: If they told me I asked the lessor and he told me the rate implicit on the lease is X for the building and X for the land, I'd feel better.
• 36:36
  SPEAKER_03: Right?
• 36:37
  SPEAKER_03: So those are just some of the we it I've seen very few instances where the less C is so comfortable with the less with the rate implicit lease that they've gotten from the Lessor and it it just smells right.
• 36:49
  SPEAKER_03: There are circumstances where it happens there's a lot of structured transactions where both parties know all the economics right and of course those are very appropriate to use it.
• 36:59
  SPEAKER_01: All right but other than those circumstances it sounds like in general Mark people are not using that rate.
• 37:04
  SPEAKER_01: Correct yes all right let's turn our attention then to another topic and um I'm gonna go back to Suzanne for this one.
• 37:13
  SPEAKER_01: And Suzanne I think this has got to be like the 10th time you and I have talked about this topic in various podcasts and webcasts but that would be least modifications.
• 37:22
  SPEAKER_01: And I think just given I think all of our discussion here started with COVID and then now it's continuing just given um current market conditions.
• 37:31
  SPEAKER_01: So can you just give us some reminders and of course we'll link back to some of the other thought leadership as well in the show notes.
• 37:39
  SPEAKER_00: Yeah and so first off I just want to start with kind of applying the lease modification like what it means to have a lease modification because that's new with the new guidance.
• 37:50
  SPEAKER_00: So it's a full remeasurement event.
• 37:52
  SPEAKER_00: So that means you're gonna have to reassess whether there's a lease if you have a contract with an embedded lease, reallocate contract considerations based on updated fair values, update all your assumptions.
• 38:05
  SPEAKER_00: So that's discount rate, which could be quite a change now with the the change in interest rates, asset fair value and any assumptions on economic penalties like for renewal like Mark had talked about before.
• 38:17
  SPEAKER_00: And after you update all that then you're gonna reevaluate lease classification using the new terms um re-measure the lease liability again using the the new discount rate um which would in turn even have an adjustment to the right of use asset and then determine a revised expense.
• 38:34
  SPEAKER_00: That's kind of how you would you would do it if you had a a modification so full remeasurement.
• 38:39
  SPEAKER_01: All right so Suzanne definitely makes sense and like I said we'll we'll link to some of those other um podcasts but specific question that I know you're seeing a lot of is that you know we've seen because of COVID and then subsequent you know hybrid work arrangements and and the like that a lot of companies are downsizing their real estate and in particular maybe we're seeing cases where someone has space and they're keeping part of it but perhaps they're getting rid of other parts of it.
• 39:09
  SPEAKER_01: And so it's like you have a partial modification or a partial termination.
• 39:14
  SPEAKER_01: And so how do you think about those types of situations?
• 39:18
  SPEAKER_00: Yeah and so we are getting questions on this more of because like it's kind of a the accounting is kind of a surprise to some the model that you end up following.
• 39:28
  SPEAKER_00: If I just give a quick example like say you have a lessee that's leasing a building and they've got multiple floors so they've got like 10 floors and operating lease and they negotiate because they're like you said maybe they're going to hybrid work they don't need as many floors or something like that.
• 39:43
  SPEAKER_00: So they negotiate to leave say three out of the 10 floors.
• 39:48
  SPEAKER_00: So they went to the lessor and kind of modified the contract to be able to do that.
• 39:53
  SPEAKER_00: Common in many of the situations is they're not going to move out of the floor immediately let's say they stay in for six months because they have to like pack up their things and and figure out you know all the logistics and they're gonna pay a termination for that termination penalty for that to get out of the space.
• 40:11
  SPEAKER_00: But let's say nothing happened with the remaining floors right so in my example I think I said they were at least in 10.
• 40:17
  SPEAKER_00: So the remaining seven floors there was like no change in payments or terms.
• 40:21
  SPEAKER_00: So when you think about the accounting for this the surprising thing to some here is that the whole thing is accounted for a mod as a modification of the whole contract all floors so it's not just simply a termination of the three floors and that was coming as a surprise to some so the reason is because all these floors it's all part of one master lease that they're leasing for that building.
• 40:46
  SPEAKER_00: So if you touch a contract term in a master lease it's gonna trigger modification accounting for the whole contract.
• 40:54
  SPEAKER_00: And so again like what I said earlier it's a full remeasurement.
• 40:58
  SPEAKER_00: So you're gonna remeasure the lease liability discount rate all that for all 10 floors um and you're gonna basically adjust the lease liability and adjust the right of use asset for the change in the liability.
• 41:13
  SPEAKER_00: Now the thing here is you'll have to recast the lease expense again for all floors.
• 41:17
  SPEAKER_00: I sound like a broken record because I keep saying that but um you're gonna use the revised payments including that termination penalty to come up with a single lease expense for all the floors and just keeping in mind though I mean it's you have to think about when you're figuring out the lease expense you've kind of got two units of account now you have you're gonna use 10 floors in my example for six months and then the rest of the floors the seven floors for um the rest of the lease term you know whatever the lease term is is so so yeah so the key here is just this even though you have this like contractually stipulated termination penalty now that's you know seems to be contractually linked to those three floors that they're getting out of in my example it's gonna impact the expense for those other floors going forward too.
• 42:06
  SPEAKER_00: So it's just you know you don't just stick with what the contract says right the the guidance would tell you you have to you have to kind of spread it all over the floors.
• 42:15
  SPEAKER_00: And that was just a little bit of a surprise to some because some thought hey I have this termination penalty it's gonna get you know 100% expensed over that you maybe that shortened six month term of the three floors.
• 42:28
  SPEAKER_01: All right so then Suzanne let me ask you a question because I think that six month delay is sort of interesting.
• 42:34
  SPEAKER_01: So do I do this like let's say I sign it today do I record it today or do I wait until the six months to make these changes?
• 42:44
  SPEAKER_00: Yeah so once you sign the contract so it's effective and all that but you're not getting out for six months that's that's when you account for it.
• 42:52
  SPEAKER_00: It's a modification and because you're not getting out for six months it's it's not an immediate termination.
• 42:59
  SPEAKER_00: Now we do get some questions like say in one quarter say you're you're in Q2 and you're talking to the lessor and you're trying to figure things out but you didn't officially sign it in that quarter you signed it in let's say Q3 right you're just still in negotiations that's not a trigger for modification you have to you know sign the deal and and ink it before you even start um accounting for that modification.
• 43:24
  SPEAKER_01: All right and then Mark let me ask you a question because Suzanne made the point of like you're making a change to this master lease agreement so it's a modification but is it any change that you're making or only some that you would need to be doing modification accounting?
• 43:38
  SPEAKER_03: Well the standard doesn't really say we have gotten a number of questions and one of the reasons that the uh the question is so pertinent is not because you know modification triggers a lot of accounting work to do but also if you recall when people transitioned from 840 into 842 there were some practical expedients that allowed them to carry Over their old lease classification or carry over their old determination as to whether a contract even contained a lease, right?
• 44:08
  SPEAKER_03: So if you modify the lease, you sort of lose that called grandfathering.
• 44:13
  SPEAKER_03: You lose that grandfathering.
• 44:14
  SPEAKER_03: So we've gotten a couple of questions where people changed something that didn't seem to affect the either the lease liability recorded on the lessee's books or didn't have any immediate impact to the PL of the lessor.
• 44:28
  SPEAKER_03: So as an example, um, they changed the way that variable rents would be computed, right?
• 44:34
  SPEAKER_03: So there was a variable rent formula.
• 44:36
  SPEAKER_03: They didn't change the fixed rents, but the formula wasn't working for one of the two parties, and so they decided to change the formula.
• 44:42
  SPEAKER_03: So people asked us, well, is that really a modification?
• 44:45
  SPEAKER_03: Is it really a modification?
• 44:47
  SPEAKER_03: Because you know, a technical reading of the literature might say, well, the variable lease payment is not quote unquote consideration, right?
• 44:56
  SPEAKER_03: And so the consideration hasn't changed.
• 44:58
  SPEAKER_03: So the answer is, I guess, that the standard is not that specific, right?
• 45:04
  SPEAKER_03: Um, we believe that unfortunately the standard doesn't really have like a significance threshold, right?
• 45:13
  SPEAKER_03: To determine, you know, it's not like debt modification accounting, where you know, one's a modification and one's an extinguishment, right?
• 45:20
  SPEAKER_03: So unfortunately, we think that any change that affects the value of the contract is probably something that would attract modification accounting.
• 45:30
  SPEAKER_03: I recognize that's an evaluation.
• 45:32
  SPEAKER_03: I recognize that's based on you know facts and circumstances.
• 45:35
  SPEAKER_03: But the bottom line is if the parties agreed to draft a new agreement and sign it, you know, we think that that most likely has some substance to it.
• 45:43
  SPEAKER_03: And if uh of a third party would feel that that contract is worth some different amount as a result of that, I think that's typically what we would treat as a modification.
• 45:53
  SPEAKER_03: Yeah, I think it would be very limited circumstances where you would ignore a modification.
• 45:57
  SPEAKER_01: All right.
• 45:58
  SPEAKER_01: So it sounds like if you open up the lease and it requires both parties to sign something for whatever the changes, then it sounds like you're gonna be headed down a modification path.
• 46:08
  SPEAKER_01: So I think that's a good reminder there.
• 46:10
  SPEAKER_01: Uh so both, as always, such a pleasure to have you on.
• 46:14
  SPEAKER_01: And I appreciate you all all of your insight in these um discussion of measurement and modification.
• 46:20
  SPEAKER_01: However, do have two final questions for you.
• 46:22
  SPEAKER_01: I'm sure this is gonna be your favorite part of the podcast.
• 46:25
  SPEAKER_01: I'm going to I have my stump the guest questions.
• 46:28
  SPEAKER_01: So I have two questions for you guys.
• 46:30
  SPEAKER_01: Let's see how we do.
• 46:31
  SPEAKER_01: We can muddle through it together.
• 46:32
  SPEAKER_01: So the first one is in 2016, the FASB issued ASU 201602, which ultimately became ASC 842.
• 46:42
  SPEAKER_01: What two countries, which are both in the the top 20 largest economies in the world, both impeached their presidents that year.
• 46:54
  SPEAKER_01: I don't even, I cannot even think of a good hint.
• 46:57
  SPEAKER_01: How about I will give you some geographic hints?
• 46:59
  SPEAKER_01: One of them was in South America.
• 47:02
  SPEAKER_03: All right, wild guess, I'll say Brazil and Canada.
• 47:05
  SPEAKER_01: All right.
• 47:06
  SPEAKER_01: So you've got one out of two there.
• 47:08
  SPEAKER_01: Brazil was correct, and I I'm not sure our friends in Canada are gonna be too too happy with that, but that's okay.
• 47:15
  SPEAKER_01: So then the other one, so good guess with Brazil.
• 47:17
  SPEAKER_01: The other one was in is was in or is in Asia.
• 47:21
  SPEAKER_01: And I personally would never be able to guess this, so I'll just give the answer.
• 47:25
  SPEAKER_01: That was South Korea.
• 47:26
  SPEAKER_01: So Claire was gonna say that.
• 47:28
  SPEAKER_01: Oh, sorry, I should have given you another minute to manage.
• 47:31
  SPEAKER_01: So all right, so practically like you got that you guys got that one right.
• 47:35
  SPEAKER_01: Um, so this one, I'm hoping one of you guys is uh a baseball fan because that same year the Chicago Cubs won their first World Series in 108 years.
• 47:48
  SPEAKER_01: So that championship drought was longer than the Boston Red Sox, who had their own infamous curse of the Bambino.
• 47:56
  SPEAKER_01: The Cubs also had a curse, uh, which they finally broke.
• 48:00
  SPEAKER_01: Any guesses what that curse was?
• 48:03
  SPEAKER_03: Shoeless Joe Jackson?
• 48:06
  SPEAKER_01: No, this is quite oh Suzanne, would you like to guess?
• 48:11
  SPEAKER_01: I don't know.
• 48:11
  SPEAKER_01: I don't wait.
• 48:13
  SPEAKER_03: Wait, wait, wait, wait.
• 48:14
  SPEAKER_03: It was uh the fan who interfered with a ball.
• 48:18
  SPEAKER_03: Is that what it was?
• 48:19
  SPEAKER_01: Sort of that's actually close.
• 48:23
  SPEAKER_01: So it's called the cur.
• 48:24
  SPEAKER_01: I have never heard of this, so it can't be that big of a curse, but the curse of the billy goat.
• 48:29
  SPEAKER_01: According to legend, the team was cursed when tavern owner William Billy Goat Sienus was kicked out of a game for bringing his smelly billy goat Murphy.
• 48:40
  SPEAKER_01: On the way out, he's reputed to have declared, them cubs, they're not gonna win no more.
• 48:46
  SPEAKER_01: And that started this curse.
• 48:47
  SPEAKER_01: Now, not sure it's quite as well known as the curse of the Bambino.
• 48:51
  SPEAKER_01: So perhaps that's the one we should have asked you about.
• 48:54
  SPEAKER_01: But I appreciate you being a good sport.
• 48:57
  SPEAKER_01: Uh, producer comes up with some very interesting questions.
• 49:00
  SPEAKER_01: So um thanks both for joining me today.
• 49:03
  SPEAKER_03: Thank you.
• 49:05
  SPEAKER_00: Yeah, thank you.
• 49:07
  SPEAKER_01: That's our show for today.
• 49:09
  SPEAKER_01: Join me this Thursday as we continue our look at climate reporting with a focus on governance.
• 49:15
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• 49:31
  SPEAKER_01: From Thought Leadership at PWC, I'm Heather Horn.
• 49:35
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• 49:41
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