With the deadline quickly approaching for adopting the new FASB lease accounting changes (ASC 842), organizations are challenged not only to be ready on time, but also to get it done right. No one wants to face the consequences of inaccurate financial reports, so the stakes are high. Companies must prioritize readiness for the FASB new lease standard, and take on the complex and time-consuming tasks of gathering, organizing and centralizing lease data.
While the responsibility of adopting the new FASB lease accounting changes technically falls onto Accounting, the Accounting department should not be in it alone. You need to rely on other stakeholders — Real Estate, Procurement and IT departments — to help implement the FASB lease accounting rule changes and get in compliance.
By including other stakeholders early in the planning process, your organization will be better prepared to make a seamless transition and produce accurate reporting.
[In addition to the right people, you need the right system. Find out 7 things to consider before choosing a lease accounting system.]
A cross-functional team with such an important mission needs a dedicated and experienced Project Manager to oversee the effort. This can be someone from your internal Project Management department or an internal accounting expert. Or, your accounting advisory partner may agree to serve in the lead role for your compliance project.
Accounting: Key roles at the core of your readiness team
Naturally, the Accounting team will be driving the process of evaluating any lease accounting solution and spearheading the process of achieving compliance. These are the specific roles within Accounting that should be engaged in the transition, helping to make sure disclosure statements are complete and accurate:
Financial Reporting. This team has the expertise about the final outcome of the lease accounting process: your company’s financial statements. They can guide the team’s data gathering efforts to make sure they right details are extracted, and help choose technology that is capable of producing the necessary calculations.
Controller’s Office. Because the Controller’s office is ultimately responsible for the accuracy of financial reporting, a representative will want to ensure that the compliance team is on track to be ready to adopt the new standards on schedule.
Accounts Payable. This group can ensure that you find every recurring lease payment and collect the all payment data (and the right payment details) for your lease accounting calculations.
Advisory Partner. Throughout this process, many companies will turn to their accounting advisory firm to help make accounting-related decisions such as practical expedients to take. Your firm may have a representative participate on your compliance team.
Real Estate: Your first touchpoint for FASB lease accounting changes
With the FASB lease accounting changes, real estate lease figures are hitting the balance sheet for the first time. The Real Estate department, historically in charge of managing and administering property lease information, is a critical source when it comes to identifying your leases and related accounting data.
Why bring Real Estate on board?
The FASB new lease accounting rules will require your organization to account for its leased property assets and expenses. While there may be substantially fewer real estate leases compared to equipment, in terms of risk and obligation, real estate typically represents the largest expense (and asset) in your leased portfolio. The FASB lease accounting changes have created a need for a working partnership between Accounting and Real Estate.
The Real Estate team can collect property lease contracts and make sure the critical data from those contracts is properly abstracted. Accounting is focused on lease elements as data points. But Real Estate can provide a new perspective on how real estate leases function and offer missing information that hasn’t previously been tracked.
In fact, some of the data you need to perform lease accounting calculations can only come from the Real Estate team. For example, to perform certain lease accounting calculations, you will need to know whether or not your company is likely to renew a property lease at the end of the lease term. Only the team making property decisions can tell you that.
And, when it comes to lease technology, there’s a good chance your Real Estate will end up using (or possibly even managing) the new software you choose to track the details of the property portfolio. So it just makes sense to be sure the tool you pick will meet their needs.
Procurement: An experienced set of eyes
Procurement’s job is to assist with the purchase of a new product or service by evaluating and qualifying vendors and related costs, guiding the process right through to the signature. They have done this many times and have the process down to a science, so you avoid delays. In some cases, Procurement can manage the project team, bringing various roles together to help them make a decision.
When it comes to your readiness for the FASB lease accounting changes, Procurement can play an important role in helping you choose lease accounting and lease management technology.
Bringing Procurement into the accounting process
Many Procurement teams are involved in asset management, whether that’s office equipment, IT items, or even a fleet of vehicles. Chances are, at some point they’ve adopted a system (even if it’s a basic spreadsheet) to track and manage leased assets and their terms.
This is why you want Procurement involved in your preparations for implementing FASB lease accounting changes. They have visibility that your Accounting team may lack into the leased assets in your portfolio.
And with an eye on organization and detail, the Procurement team may notice an opportunity to centralize operations and better manage your portfolio by implementing a global solution to handle all aspects of lease accounting and administration.
IT: The glue that makes everything stick
It is easy to overlook the fact that the Real Estate team is only thinking about property, Accounting is focused on the balance sheets, and Procurement is focused on assets and contracts. But the IT department brings all those pieces together, considering both the big picture and the details of lease accounting implementation. IT handles the back end and provides the technical support necessary to assemble data, perform calculations, and produce accounting journal entries.
These are the IT roles that you’ll need on your lease accounting implementation team:
ERP Administrator or Technical Project Manager. These IT roles figure out how to collect lease data that may be scattered across many data sources and even regions, and consolidate it into one central location. It is IT’s job to ensure that data flows from the sources of record to a lease accounting system and ultimately to your GL or ERP system. IT is heavily invested in how the integration works, investigating all avenues, setting up flat file exchanges, and overseeing a seamless connection.
SSO (Single Sign On) Expert. If your organization is planning to integrate your new lease accounting technology into an existing SSO implementation, you will need someone who can validate tools and manage that process.
Teams within the team
It can help to think of the lease accounting readiness team in terms of the two main tasks you need to accomplish:
- Gathering the data
- Evaluating what software solution to use
In our experience, it’s smart to divide your team into two groups focused on each of these tasks. The two groups should meet regularly to compare notes and share information.
Ready? Set. Go!
With the FASB lease accounting changes quickly approaching, it takes more than your Accounting team to ensure that your organization can effectively integrate information, share data, and comply with the new standards. It takes a well-rounded team.
By fostering early collaboration and meeting regularly to compare notes with your Real Estate, Procurement, and IT stakeholders, your Accounting department can pave a smoother path to adopting the new standards and avoiding compliance penalties.