Introduction

The FASB 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 will create a greater compliance burden and have a material change on corporate financial statements. Investing in a lease administration solution can simplify the process to adhere to key requirements set forth by FASB.

What is Accruent Doing to Stay Ready?

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 Accruent Lease Administration products comply with the FASB / IASB changes to ensure customers receive the most up-to-date functionality, like lease classification, remeasurements, and audit tracking, as well as reporting in parallel throughout the transition period.

With the new Accruent release, we have integrated deep functional support for users preparing to transfer their leases to adhere to the new FASB lease accounting standards. The new functionality will allow for a simplified and accurate transition, and let businesses prepare and edit their lease content before fully adopting the new standards. 

What Are Some of the Product Features?

Here’s just a small sample of what’s coming up in our latest update:

  • Classification Test - Determine whether or not a lease is a Finance or Operating lease with a list of questions to help determine which kind of lease you are working with.
  • Details Entry - Allows you to capture the information to initially populate the lease accounting schedules for an operating or finance lease. You can make modifications such as Type of Lease, Schedule Start/End Date, Initial Direct Costs, and Probable Owed Residual Value, just to name a few.
  • Modifications - Can be added to leases for remeasurement under the new standards. Modifications that can be made include Interest Rate Adjustments, Probable Options, Changes in Asset, new Asset Descriptions and Type of Lease Transaction, among many others.
  • Reporting - The types of reports included in the first FASB release are Operating and Finance Schedules, Topic 842 Classifications, FASB Audit Log, FASB Details and Modifications, Assets vs. Liability, and Accumulated Liability.

Readiness Checklist

It’s important to understand now what your current lease terms are and how they might be affected. Not only do the new lease accounting standards apply to future leases, but they also apply to those existing at the time of the change.

Here are some suggestions we have to help your organization get ready for the change:

For current leases:

  • Know if your leases will be affected
  • Know how your leases are currently categorized
  • Know the lease start date and which options you have a significant economic incentive either to extend or terminate
  • Know your discount rate for calculating Net Present Value (NPV)
  • Know your future payment obligations
  • Know your past payment history
  • Keep track of modifications that happen between now and the commencement date: term length, payment amount, index or rate, impairments, and lease hold improvements

For future leases:

  • Know the lease term
  • Know what category the lease falls into
  • Know if your lease contract contains multiple assets
  • Know your discount rate for calculating NPV
  • Know your future payment obligations
  • Know the amount of initial direct costs and incentives
  • Keep track of modifications that happen between now and the commencement date: term length, payment amount, index or rate, impairments, and lease hold improvements

Next Steps: A Resource Guide for Implementing FASB Lease Accounting Standards

The official release of FASB lease accounting standards has generated an abundance of excellent online content detailing the new requirements. But understanding the new standards is just the starting point. Implementing, managing and monitoring your company’s FASB compliance solution will be the real challenge.

In discussing the results of KPMG’s 2016 Accounting Change Survey, KPMG partners Dean Bell and Steve Thompson framed the current outlook like this:

“Given the long lead times for data gathering, data input and lease abstraction, system selection and setup, companies need to start their adoption journey today. Without the right adoption tools and methodology, businesses may not be ready to manage the changes ahead and may be negatively impacted through financial reporting, operations, and overall management of the business.”

To support your implementation planning, we’ve curated a selection of resources that will help you devise and execute your lease accounting strategy.

Everything You Need to Know

A 41-page bulletin from Deloitte with the cheeky title “Bring It On!” is a comprehensive primer on the new FASB lease accounting standards that highlights implementation considerations and other key aspects like disclosure requirements, transition to the new standards, and evaluating whether an arrangement is or contains a lease.

The Deloitte bulletin also includes a side-by-side comparison of key provisions of the new lease accounting model under ASU 2016-02 and IFRS 16 – which was developed in cooperation with FASB but which differs in several notable ways.

With changes as significant as the new FASB standards, context that shows how other companies are preparing is invaluable. In June 2016 PwC and CBRE released the findings of their Lease Accounting Survey. The survey’s findings are based on responses from more than 500 executives responsible for lease accounting or lease management across a wide range of industries. The results reveal the steps companies are already taking as well as the respondent’s insights on the challenges ahead.

Cost/Benefit Analysis

In addition to the official Accounting Standards Update No. 2016-2 (aka Topic 842), the FASB.org site contains a range of information resources on the new lease accounting standards. One FASB resource of particular interest is an overview of the leasing standards’ costs and benefits, which discusses the assumptions and process the board used in determining that the new leasing standards’ benefits exceeded the potential costs.

For a deep dive into how to identify and calculate your company’s potential implementation costs, this Effects Analysis of IFSR 16 standards -- which were developed jointly with the FASB standards – provides a wealth of data-driven tools.

Plan the Work, Work the Plan

This article from the Journal of Accountancy provides a concise overview of FASB’s basic principles and their business implications, and eight helpful implementation tips your company can use to pave a smooth path to compliance with the new lease accounting standards.

For an even briefer take, check out this FASB lease accounting 6-Point quick-start guide from PwC. Likewise, Deloitte’s Operationalizing the New Lease Standard webpage offers a starting point for building an implementation plan.

Learn More

Email Dsmith@accruent.com to schedule a review of your FASB readiness and start executing your leasing standards implementation plan.

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