While all leases will be impacted by the new FASB and IASB lease accounting standards, it’s likely the most significant impact will be on your equipment leases.
Most companies have a firm grasp on where their real estate leases are stored, as these leases are typically managed using centralized processes. However, equipment leases are traditionally managed in a decentralized manner at local offices by local managers.
To achieve compliance with the new FASB and IASB lease accounting standards, think about compliance as a three-legged stool with roles and responsibilities for data, software, and auditors.
Your FASB and IASB compliance success is dependent on minimizing the risks associated with the scope of your lease data and its transition.
You’ll need to identify the required inputs – leases and lease data – for your lease management process. Once you have your leases and required lease data available for analysis and evaluation, you’ll determine their proper treatment under the lease accounting standards. You should also confirm if you have other types of contracts that may have leases embedded in them.
When converting from a legacy system to a new software environment, who do you trust to touch your data? Considering the high rate of failure that plagues the data migration process in most companies, it’s an important question.
If you’re not using a lease management solution, the volume and complexity of the lease data you need to collect can put your entire FASB and IASB compliance project at risk. If your company is facing this scenario, you have an opportunity to transform your lease management processes by partnering with a trusted software provider.
The right partner can provide external services to support you in your lease search and abstraction process. These services help with the data conversion process and upload large volumes of lease data into the lease management solution. The accuracy and thoroughness of collecting, converting and migrating your lease data into an appropriate lease management system is critical to your compliance success. Many times, a complicated data migration process can stall implementations, or in some cases, stop it completely.
Preparing early, knowing what needs to be done, and investing in a lease administration solution can simplify the process of adhering to the key requirements set forth by FASB and IASB.
It’s likely that you’ve already had discussions with your auditor to understand the regulatory and reporting impact of the new FASB and IASB lease accounting standards.
Public enterprise companies with large operating lease obligations are most affected by the new standards and face the highest risk of failing audits.
Each standard represents its own challenge for finance, real estate, and facilities management teams. With key stakeholders in your organization – lease administrators, IT, legal and finance – with each area trying to solve different problems, communication within the organization is integral to adopting these new standards seamlessly.
All departments must work with your accountants and auditors to streamline business controls and communicate any changes in processes. This communication will help ensure that the accounting is done right.