Posted on 11/06/2017
In our first blog of the three-part series on FASB Readiness, we outlined the first step to FASB/IASB readiness: identify, collect, and load your real estate and equipment leases. In this blog, we’ll discuss steps 2-4, taking the data you have collected and making sense of it.
In step two, you’ll need to determine the accounting assumptions. A few assumptions to consider are: Cost of Capital and Economic and Fair Value thresholds (for FASB only).
When looking into the Cost of Capital Assumption, the data you need should be in the lease, but if not, you should call on a member of your Treasury department. Additionally, when analyzing the Economic and Fair Value threshold assumptions, these should be approved or validated by your Finance group or Corporate Compliance group.
The FASB test has five components. If a lease passes all five, then the lease is treated as an operating lease. If the lease fails any one of the subtests, then the lease is treated as a finance lease. The test outcome determines how the lease is amortized and reported. According to Skoda Minotti, a top tier financial advisor, the requirements are defined below:
In this step, you will be responsible for generating calculations and reports, which can consist of the weighted average lease term and cost of capital, the present value and related interest/amortization components for the balance sheet and P&L, and short-term lease costs.
Our lease accounting solution has independent, third-party verification of its compliance with the new FASB ASC 842 and IASB IFRS 16 lease accounting standards. We are ready to assist your organization to classify, capture and upload leases accurately with our built-in, intuitive and user-friendly wizards and templates. Contact us today to get compliant!