If you work in Accounting, you’re likely facing mountains of paperwork. Some of the rubber-banded stacks are small, containing documents that are clearly leases – the company’s real estate agreements.
But other stacks, scattered across your desk, are full of master equipment leases and service contracts, so you confer with your FASB project team for help in deciphering the legal language. Later that day, you meet again with your team to make a final sweep to ensure all appropriate departments – Marketing, HR, IT, and Procurement – have been surveyed for leases of their own.
This new workload – collecting leases across the corporation and analyzing their data – was brought upon by the new lease accounting standards issued by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB). In fact, these are the most sweeping changes to lease accounting and financial reporting in more than 40 years. It’s estimated that there are $3 trillion of lease commitments agreements globally for public companies, of which 85%, or $2.8 trillion, are off the balance sheet for financial reporting. And FASB is asking that those trillions of dollars being pulled onto the balance sheet.
The new standards will have an impact on real estate leases to be sure, but the greatest business impact will be on equipment leases, such as vehicle leases and TRAC leases, since these have traditionally been accounted for as operating leases, off-balance sheet, and managed operationally in local offices with decentralized lease management processes.
And the deadlines are quickly approaching. Public companies are mandated to start reporting under the new lease accounting standards in 2019, but they will need to provide three-year comparative financial reporting. That means they will need to track FASB and IASB lease calculations and schedules back to January 1, 2017, to provide accurate comparative reporting in 2019.
Due to the heavy burden of bringing the financials into compliance, Accruent has put together a fail-proof implementation pathway for adopting the new standard efficiently without disrupting the business. Each step will assist you in your journey to prepare for the transition.
And as if the new real estate lease compliance process wasn’t enough, the most burdensome aspect of compliance will be equipment leases. Accruent would like to help ensure your readiness for the new standards with our third-party verified FASB and IASB equipment and real estate lease solutions. Our solution is designed to assist with equipment and real estate lease administration, accounting, and compliance. Even if your current system is equipped to handle real estate leases, the nuances of equipment lease reporting will require procedural changes – and perhaps most sweeping is the requirement of asset-level accounting.
Even though there is not a separate lease contract for each individual asset, asset-level accounting is the ability to track and report at the individual asset level, including:
- lease terms
- calculations and transactions
- end-of-term options
- FASB accounting assumptions
- ASC 842 tests
- FASB and IASB schedules
Asset-level accounting is different from contract-level accounting, common in real estate leasing, with one lease contract governing one asset.
If your organization needs assistance learning more about asset-level accounting or FASB and IASB compliance for real estate and equipment leases, Accruent is ready to help.