A 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.
Most people don’t evaluate lease accounting software every day. In fact, many people who have never thought much about lease accounting technology are being compelled by the new FASB and IFRS mandates to start looking for a solution that can get them to compliance on time. To help, we’ve compiled a list of the most important questions to ask any vendor you consider. You can find one with all the right answers.
1- Has the solution been validated by CPA’s and financial reporting experts?
As one major retail client of ours said, “I can’t afford to get this even 1% wrong.” While the screens that you see in a lease accounting solution aren’t terribly complex (at least they shouldn’t be) the calculations that happen behind the scenes are extremely complicated. That’s why you want to insist on a solution with vetted calculations. Better yet, if the system is recommended by some of the big accounting firms.
Since 2010, the Financial Accounting Standards Board (FASB) has been considering significant changes to the way leased real estate and other assets are reported by public companies. The new lease accounting standards were announced last year and will go into effect for pivate companies and public companies with private debt on December 15, 2018 and for public companies on December 15, 2019 It is important that business leaders think about what this change will mean for them and how they should prepare.
What will change?
The new lease accounting standard proposed by the Financial Accounting Standards Board (FASB) profoundly changes the rules that govern accounting for real estate and equipment leases. Under the proposed new rules, companies would be required to recognize the assets and liabilities resulting from leases (including existing leases) of more than 12 months in duration based on the present value of lease payments. The change will result in very real consequences for corporate financial statements. Although the standards aren’t expected to be finalized until the third quarter of 2015, and they likely won’t go into effect until 2018, now is the window of opportunity for CFOs and corporate real estate teams to prepare to minimize the impact.