AMTdirect Insights Blog

Developing a Budget for Lease Accounting Compliance

FASB 842A key component of complying with the new FASB 842 and IFRS 16 lease accounting standards will require investment. An overwhelming majority (92 percent) of respondents from The Great Accounting Challenge: KPMG’s 2016 Accounting Change Survey believe they will need to upgrade their lease accounting system or invest in new technology as a result of the new lease accounting guidelines. In addition, 77 percent say that technology upgrades will be the most challenging part of compliance.

Keep in mind that lease accounting compliance isn't a one-time event. When the terms of a lease change — it is renewed or renegotiated or some other change is made — it triggers recalculations that become too complex to try to do manually. All of the day-to-day things that happen during the life of a lease need to be accounted for. Spreadsheets are not the solution.

While companies need to budget for the necessary software updates and other technology upgrades, they also need to allow for implementation, training, and post-installation follow-up. It is imperative to build training hours and associated costs into the budget. You also need to budget resources for confirming that the necessary data has been extracted from the leases correctly, with the process documented.

To that point, one of the key areas where budgeting often falls short is estimating the time, resources, and effort it will take to extract the pertinent data needed to comply with the new lease accounting standards. Based on the assessment of how much time it will take — with conservative estimates of one to two hours to review each lease — companies will then have to decide if they have sufficient in-house resources or should partner with a services firm for lease abstraction and data entry. In addition to budgeting the necessary dollars, consider the time it will take to have your lease data entered, whether you do it or a partner does. 

Don't forget about equipment. Everything from computers to printers to office chairs is included, so the number of equipment leases will impact your cost as well.

One word of caution. There are a limited number of software companies with solutions capable of addressing the new leasing standards. (Check here for a help on how to pick the best one.) There are also a limited number of experts who know how to implement the technology, abstract leases and streamline your path to compliance. Because so many companies will need to comply with the new standards, these resources will be stretched. The price for technology and services is only going to go up as we get closer to the deadline, so it is a smart move to get your project off the ground as quickly as possible.

Posted on 2/28/18 12:00 AM by Amber Bigler Newman in Real Estate Accounting, in FASB, in Lease Accounting

Amber Bigler Newman

Written by Amber Bigler Newman