By LeaseAccelerator, a friend of Andersen Alumni

The new Lease Accounting, Revenue Recognition and Financial Instruments Recognition Standards updates, collectively referred to as “New GAAP,” have hit companies all at once. And as FASB rolls out accounting reform after accounting reform, many companies are overwhelmed by the number of changes they need to make in such a short time. The first effective dates for revenue recognition and financial instruments only hit on January 1, 2018, so until recently most firms were focused on completing their implementation projects for those updates. However, that means that firms have only just started to devote their attention to what for some will be the most challenging update FASB has released – the new lease accounting standards, ASC 842 (FASB) and IFRS 16 (IASB) – which will be adopted starting January 1, 2019.

The new lease accounting standards have been called the “biggest accounting change ever.” It’s not all hyperbole. The purpose of the leasing standard is to move all operating lease obligations, previously only reported in the footnotes of financial statements, onto the balance sheet to be reported as an asset and liability. The IASB estimates that over $2 trillion in leases will move onto corporate balance sheets. The accounting wouldn’t be too difficult to complete, except leasing – especially equipment leasing – has typically been a decentralized process at most organizations. Companies have never been forced to track their lease data closely until now, so their leases tend to be scattered throughout systems, spreadsheets and even file cabinets.

It comes as no surprise, then, that according to a survey conducted by LeaseAccelerator of over 300 finance and accounting leaders at large US-based companies, 75% of those surveyed said the lease accounting standards implementation was more complex than originally anticipated. The major challenge is simply collecting the lease data needed to transfer operating leases onto the balance sheet, according to more than half of respondents. That challenge will continue even once companies adopt the new standard, as they’ll now have to closely track each new lease they sign.

At this point, you may be wondering what you can do to help companies implement the standards. At LeaseAccelerator, we’ve had the opportunity to work with accounting and finance professionals at Fortune 500 companies who are implementing the new standards. They have shared their best practices for collecting data and completing the project. These are a few of the key steps you can take to ensure your company has a successful implementation.

1) The first step is to put together a project team consisting of members from all the organizations that touch leasing. That may include Corporate Real Estate, Technical Accounting, Financial Reporting, IT, Procurement, Treasury and Accounts Payable. You may have to look through documents like master lease agreements, invoices and purchase orders as well as information stored in asset management systems to find all the data you need, so it’s crucial to have a representative from these key organizations on your project team.

2) Before you do anything else, you need to plan. Determine what the current state of your lease program and systems are. If you’re like most companies, your data will be scattered. Make a list of the data fields required by the new lease accounting standard. You may need to collect over 100 data fields per lease, including end-of-term options, incentives and payment information. Keep in mind that the new standard requires data tracking at the asset level, rather than the lease contract level, and many leases have multiple assets listed on them. Having a checklist of the data fields you need to capture will ensure you don’t have to repeat the data collection process to find missing fields later.

3) You will likely need to invest in a lease accounting application to handle the data. Even companies that can capture their current lease data in spreadsheets will have a difficult time using spreadsheets to keep up with the on-going data collection process. Lease management and accounting software applications that are designed to function with the new standards will be a necessity for most large corporations. Some of the many features the application should have, include: data tracking at the asset-level; automated reporting; and integration with your ERP, general ledger, asset management systems, and any other applications that touch leasing. You’ll also need to budget time to test the new software and train end users.

4) The last step, which should really be completed throughout the project, is establishing new processes, policies and controls to better manage your leasing portfolio in the future. For example, set up processes to track changes that may lead to modifications and reassessments. To better manage leases, you should ensure that asset users regularly update lease data to record any changes to the assets on the lease in the middle of term. One way to do this is by automatically sending notifications to remind asset users of important deadlines – a feature available on some lease management applications. These processes, policies and controls will not only help you better manage your lease portfolio to comply with the standards, but also help you save costs on leasing in the future.

The LeaseAccelerator survey tells us a lot of what we already know – the lease accounting standards are challenging, and the mountain of data that needs to be collected is the most difficult part. However, difficult doesn’t mean impossible. In fact, it’s even possible to complete this overwhelming task by the deadline. Just take a step back to make sure you have all the information and resources you need before going in, and then systematically go through your current leases and upload the data into a trusted leasing software. You’ll be on-time for your implementation, and will likely get the added bonus of reducing unnecessary leasing costs.

About LeaseAccelerator

LeaseAccelerator offers the market-leading software-as-a-service (SaaS) solution for Enterprise Lease Accounting, enabling compliance with the current and new FASB and IFRS standards. Using LeaseAccelerator’s proprietary Global Lease Accounting Engine, customers can apply the new standards to all types of leases, including real estate, fleet, IT and other equipment at an asset level as specified by FASB and IASB. On average, LeaseAccelerator’s Sourcing and Management applications generate savings of 17 percent with smarter procurement and end-of-term management, delivering both compliance and ROI. Learn more at http://www.leaseaccelerator.com/.