Understanding the new lease accounting standards released by FASB and IASB
In the first quarter of this year, both the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) released the new lease accounting standards which will go into effect starting in 2019.
All leases will be impacted by the new standards, including equipment and vehicles. FASB has embraced a dual approach to lease classification for lessees with two lease types: Operation Leases and Finance Leases.
Globally, there are as many as 85% of leases that aren’t being reported on balance sheets. With the deadline less than three years away, many companies are frantically trying to account for their assets and put processes in place. As companies are required to provide three years of income statements and two year of balance sheets, now is the time to develop and implement your FASB readiness plan.
Making FASB Compliance your top priority
We recommend five easy steps to start tackling the daunting task laid out.
- Account for your assets. Not only do you need to start making a list of all your real estate and equipment leases, you must also capture essential data including, but not limited to, lease commencement and expiration dates, option notification dates and terms, rent and income escalations, security deposit and tenant allowance information, additional rent contingencies, tenant improvements and so on.
- Form a cross-functional team of experts. Your team should consist of professionals from Finance, IT and Real Estate that are ready to analyze your existing business processes and measure their current level of FASB readiness.
- Understand your current lease portfolio. A strategic evaluation of your lease inventory is pertinent for you to understand how each of the lease assets will be accounted for under the new rules. You will need to identify where you have systems, resources, data and process gaps in your portfolio with respect to the new financial reporting requirements.
- Revisit and re-negotiate lease agreements. With leases getting on to the balance sheet, even a minor item like service charge may have a significant impact on your overall financial statement. Make a habit of looking out for these seemingly trivial (yet vital) elements in the leasing contracts and attempt to re-negotiate the terms.
- Get help from the experts! Creation and implementation of a roadmap is the final and most important step you will need to take in order to achieve FASB readiness. ValuD’s team of dedicated lease accounting professionals are waiting to assess your challenges, and leverage the best technology to be certain you meet the compliance deadline.
How can ValuD solve your Lease Accounting challenges?
The ValuD team has been working with our clients to help kick start their FASB readiness plans to make sure they are compliant by 2019. Applications like IBM TRIRIGA, a facilities management software can help achieve your objectives. Our team uses the solution to help clients evaluate the balance sheet and P&L account for lease versus buy decisions. The software helps identify under-performing and/or under-utilized facilities, assets, processes and resources, and can even assist you in analyzing asset conditions, assess ROI on new facilities and thereby prioritize your investment decisions.
Are you FASB Ready?
- Do you fully understand the accounting requirements?
- Have you assessed your existing technology and performed a lease data gap analysis?
- Do you have the lease population recorded by type, system and location?
- Has your team developed an extensive roadmap as to how you will face these impending changes?
If you haven’t started planning for FASB, email us at email@example.com.