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AMTdirect Insights Blog

The Cross-Functional Impact of the New Lease Accounting Standards

FASB lease accountingWe are often asked if the new lease accounting standards are a real estate management or an accounting problem. The answer is yes! In fact, those aren’t the only groups that will be affected. The new standards have a much more far-reaching impact than most changes to accounting rules, so folks across the organization will need to step up to the plate to tackle this difficult challenge. Here are some functions to consider.

Finance and Accounting - Obviously, the accounting team has a major role to play. In most cases, someone from the finance team will spearhead the organization’s compliance efforts. Finance teams will want to ensure that the correct approval, negotiation, and data management practices are in place to avoid potentially costly errors.

Real Estate – In order to correctly classify a lease at the outset, data that real estate teams typically control will be required. In addition, normal events that occur over the life of a lease, such as renewing an option or collecting tenant improvement allowances, will require a reassessment of the FASB / IASB schedule, meaning that real estate professionals will be closely involved in compliance going forward.

Procurement – Keep in mind that the new standards apply to all sorts of leases, not just real estate. Equipment, vehicle, furniture, and other leases need to be accounted for as well. In many organizations, there is no centralized lease administration function for non-real estate leases. If that is the case, the procurement team may have access to necessary information and may need to be involved in the transition. The best long-term solution for equipment leases is to pick a lease administration solution that can handle both real estate and equipment leases in one unified platform.

Analyst Relations/Public Relations – For many companies, this change will have a substantial impact on the balance sheet. AR and PR professionals should prepare the investment community with the estimated impact of the change and an explanation of what it does or doesn’t say about the financial health of the company.

IT – If your organization already has technology in place that supports the new standards, IT’s involvement may be confined to validating the solution and setting up any necessary integrations. If not, IT may need to be involved in the selection and deployment of lease accounting software. Fortunately, most modern solutions are cloud-based, taking some of the implementation burdens off the IT team.

HR – It surprises people when we say that even HR leaders need to think about the new leasing standard, but compensation is often tied to financial performance. This structure may need a new look in the wake of the new reporting mandate.

There isn’t much time left to achieve compliance, so if you haven’t assembled your team yet, the time to act is now. Our FASB lease accounting resource center provides valuable information that can help you get started.

 

Posted on 1/29/18 5:08 PM by Amber Bigler Newman in FASB, in Lease Accounting

Amber Bigler Newman

Written by Amber Bigler Newman