Posted on 08/04/2016

In this blog, we'll be laying out the challenges of FASB, and what you can do to meet the compliance standards.

What is FASB?

The Financial Accounting Standards Board (FASB) was established in 1973 to “establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernmental entities that provides decision-useful information to investors and other users of financial reports.”

There are a number of standards that have been established that require adherence by non-governmental companies and organizations. In February 2016, FASB announced the new accounting standard ASC 842, that requires these organizations to include lease obligations on their balance sheet.

As a result, some companies must change the way that they manage their leases. Investing in a lease administration solution can simplify the process of adhering to key requirements set forth by FASB.

What Does It Mean?

With the lease accounting changes, leases will be recognized as a Right-of-Use Asset (ROU Asset), and nearly all leases must be recorded on the Balance Sheet. Operating and Capital leases will be classified as Operating and Finance leases.

Classification of the lease looks at how much the underlying asset was consumed during the lease term. The classification determines the method for recognizing lease revenue and expense.

For lessees, the recognition of lease-related assets and liabilities, as well as changes to the timing of lease expense recognition, could have significant financial reporting and business implications.

Potential Impact

Lease accounting changes are part of a multi-year effort to align U.S. standards with global accounting standards while increasing the transparency of off-balance sheet obligations.

For most organizations, the changes create a greater compliance burden and have a material change on corporate financial statements – potentially bringing billions of dollars onto corporate balance sheets, modifying financial ratios, and impacting debt covenants.

Accruent Is Ready. Are You?

Accruent actively monitors the proposed changes and incorporates them into our robust financial engine that manages core financial data for the generation, management and reporting of lease standards.

Our lease administration software complies with the FASB/IASB changes to ensure our customers receive the most up-to-date functionality, such as lease classification, re-measurements, and audit tracking, as well as reporting in parallel throughout the transition period.

As you work with your accounting team to tackle FASB head on, Accruent is ready to be your trusted software partner and help you meet these standards. Whether it’s the lease transition from FAS 13 to Topic 842 or GL Integrations, Accruent has you covered!

If you would like to learn more, please contact 512-955-3326 or dsmith@accruent.com to speak to one of our team members.

Ready for part two of this blog? Getting Your Business FASB Ready – Part Two