The new lease accounting standards include a variety of disclosure reports to give financial auditors visibility into a company’s leasing activities. The standards require companies to explain changes to leases on the balance sheet. They must disclose amounts gained or lost, as well as why those gains or losses occurred. Roll-forward reports are a valuable tool for meeting this lease accounting requirement. They provide a detailed explanation of lease financials, including period-over-period changes to right-of-use (ROU) assets, as well as short-term and long-term liabilities.
As we know, a company’s leases and liabilities are always changing due to events, such as modifications, terminations, or other material changes. Roll-forward reports are an effective method for disclosing these and other changes that occur in the life of a company’s leases.
The roll-forward reporting concept is similar to a statement of cash flows, which reconciles the differences between the cash position on the balance sheet and on the P&L statement. A roll-forward report does the same thing, but for leases. The reports provide a window into a company’s lease portfolio and business decisions, including the reasons for additions or subtractions in lease financials. For instance, a report may show a large change in a liability but also reveal it is offset by additional lease assets.
Roll-forward reports are also a way to separate finance leases from operating leases as required for ASC 842 compliance. The reports can also segregate and report lease information according to asset classes.
Roll-forward reports outline the changes in your balance sheet period-over-period. So, the first step to a roll-forward report is to make sure your lease information is accurate, up-to-date, and complete. Roll-forward reports typically include lease information collected from multiple sources, such as the different departments responsible for real estate assets. The information within roll-forward reports will vary depending on company structure, assets, and accounting and reporting needs. The report must explain why changes occurred in lease financials, as well as the amounts. Roll-forward reports for a ROU asset or a short-term or long-term liability typically include the following:
- Beginning Balance +Value of New Leases -Amortization Expense = Ending Balance
- Beginning Balance, Short Term Liability +12 Month Obligation for New Leases -Payment, Principle -Payment, Interest Expense +1 Month Rolled from Long Term (If applicable) =Ending Balance, Short Term Liability
Roll-forward accounting presents--term and short-, if done correctly, should equate to equal monthly expense over the life of the lease.
Roll forward reports are important for both lease accounting compliance and ongoing lease visibility. They enable us to easily view lease changes, the reasons behind them and their impact, all in one report. Implementing a technology platform that automates roll-forward reporting gives companies the ability to streamline information by gathering calculations while ensuring that the process meets compliance requirements.
Accruent’s lease accounting platform, Lucernex, supports roll-forward reporting for better transparency. The platform’s roll-forward reporting capabilities provide users with a clear understanding of lease changes and their impact on the company. Users can easily view all the supporting data and lease activity right within the platform. Lucernex can also separate finance and operating leases for compliance with ASC 842.
