🇺🇸United States

Accounting non-compliance risk from poor TIA tracking under ASC 842/IFRS 16/GASB 87

2 verified sources

Definition

Tenant improvement allowances are lease incentives that must be properly recorded and depreciated to comply with major lease accounting standards; weak tracking of TIAs across properties can result in incorrect right‑of‑use assets, lease liabilities, and expense recognition. Lease accounting experts warn that failure to adequately record and depreciate TIAs can be detrimental to a company’s financial health and jeopardize compliance.[4][5]

Key Findings

  • Financial Impact: Restatements, audit remediation projects, and potential penalties for material misstatements can cost mid‑ to large‑cap tenants hundreds of thousands to millions of dollars in audit fees and remediation work, aside from reputational damage.[4]
  • Frequency: Annually during audits and quarterly closes, especially for multi‑property portfolios
  • Root Cause: Decentralized storage of TIA terms and payments, lack of integration between lease administration and accounting systems, and manual spreadsheets make it difficult to track incentives accurately and align them with accounting entries over the lease term.[4][5]

Why This Matters

This pain point represents a significant opportunity for B2B solutions targeting Leasing Non-residential Real Estate.

Affected Stakeholders

Corporate controllers, Lease accountants, External auditors, CFOs, Real estate finance leaders

Deep Analysis (Premium)

Financial Impact

$100,000-$1,000,000+ in audit adjustment for capitalized assets that should have been expensed or vice versa; project delays if audit findings block cost recovery; potential CapEx restatement • $100,000-$500,000 in audit adjustment requests; restatement risk if franchise parent company is public; operational delays if audit findings block store openings • $100,000-$500,000 in audit fees to correct TIA capitalization errors and ensure ASC 842 compliance; potential restatement if multi-year issue

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Current Workarounds

AR Specialist receives TIA documentation from Facilities team sporadically, creates separate tracking in Excel, must follow up repeatedly on missing receipts or invoices • Central office Facilities Manager maintains paper files, email coordination with practice locations, manual tracking of TIA status, sporadic documentation collection • Construction Manager tracks TIA invoices locally; submits to Tenant Relations Manager separately; no formal approval workflow; Tenant Relations Manager may not validate TIA compliance with lease terms before submitting to Finance

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Methodology & Sources

Data collected via OSINT from regulatory filings, industry audits, and verified case studies.

Evidence Sources:

Related Business Risks

Forfeited tenant improvement allowance due to poor tracking

Common TIAs range from $10–$50 per square foot; for a 10,000 sq ft space this is $100,000–$500,000 of which a material share can be forfeited if deadlines or documentation are missed.[1][6][10]

Uncollected or delayed TIA reimbursements from landlords

Individual TI receivables often run into hundreds of thousands of dollars per lease; missed or long‑delayed payments can leave six‑ or seven‑figure balances outstanding across a multi‑site tenant.[3][5]

Budget overruns on tenant improvements from weak TIA expense tracking

For a TIA of $30–$50 per square foot on a 10,000 sq ft space ($300,000–$500,000), overruns of 10–20% are common in construction projects, equating to $30,000–$100,000 per build‑out.[2][6][8]

Overpaying contractors due to inadequate invoice auditing

Overbilling in construction has been documented in industry studies at several percent of project value; on TI budgets of $100,000–$500,000 this can translate to $5,000–$50,000 per project in excess payments.[8]

Rework and additional spend from non‑compliant improvements

Rework on commercial interiors frequently runs in the tens of thousands per location; for a mid‑size TI project, needing to redo 10–15% of work can cost $20,000–$75,000 plus potential loss of TIA reimbursement tied to the non‑compliant work.[1][6]

Delayed TIA reimbursements extending time-to-cash

For TIAs of $150,000 or more per lease, delays of 3–6 months in reimbursement represent a significant financing cost; the implicit cost of capital on these delayed inflows can reach tens of thousands annually for multi‑location tenants.[3][5]

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