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The 10 Key Issues to Consider in the Last 90 Days Before the Lease Accounting Deadline

By LeaseAccelerator, a friend of Andersen Alumni

For year-end public company filers, the deadline to implement the new lease accounting standards (ASC 842 in the U.S. and IFRS 16 internationally) is on January 1, 2019 - less than 90 days away. Most companies have been focused on collecting all of the necessary lease data to achieve compliance, but that is only one piece of a successful transition. For those nearing the end of the implementation project, here are 11 key issues you should consider in the last 90 days.

1. Accounting Policies, Elections, and Transition Strategies

To adopt the lease accounting standards, the accounting organization will be responsible for updating policies, electing practical expedients, and defining the transition strategy. For example, the new standard raises questions about how to define a lease and also allows companies to choose policy thresholds for classifying a lease as operating versus finance. In addition, companies will need to determine when they will transition their systems and begin accounting under the new standards. If you have not done so already, make sure to review these decisions with your external auditors.

2. Business Process Readiness

Even once companies achieve compliance, they will need to ensure they have the business processes in place to maintain compliance in the future. Otherwise, the lease portfolio will fall out of compliance quickly. If you haven’t already, you should start designing processes for the future state of your leasing program. At a minimum, these should include processes to capture each new lease, document changes that occur during the lifecycle of the lease, and record end-of-term decisions so that the right-of-use asset and lease liability values on the balance sheet are accurate and complete.

3. Organizational Readiness

In the past, leasing has been a decentralized process with business units and locations around the globe making their own judgements and decisions. However, now many companies are opting for leasing centers of excellence which will be responsible for lease accounting and, in some cases, administration. Whatever the scope of the center of excellence, your organization will need to ensure that it has the personnel with the necessary skills to fill it.

4. Data Readiness

Collecting data has been the most challenging part of implementing the new lease accounting standards for many companies. Many organizations are almost complete with this phase of the project, but it’s still important to know where your organization is at in the data collection process, the quality of the data that has already been collected, and what still needs to be gathered.

5. System Readiness

Many companies have already selected their lease accounting software and are busy implementing the system. Even though the deadline is tight, it’s still important to set aside time to test functionality and performance. In addition, while many companies do not think they will have time to integrate their lease accounting system with other financial systems by the deadline, it is crucial to develop temporary processes to keep the data in sync. For example, consider how you will upload journal entries to the general ledger, or sync leased asset data between the lease accounting system and asset management systems, like IT, fleet, and real estate.

6. Accounting Testing & Validation

An important part of the transition is testing accounting outputs from both systems and manual processes for accuracy. Companies should run tests on different use cases from their lease portfolio, including various rent schedules, lease structures, modifications and reassessments, and end-of-term events.

7. Training Programs

All of the personnel involved in the lease accounting processes will need to be trained on their responsibilities. The center of excellence will handle the accounting and potentially some lease administration duties, so will need to understand the ins and outs of the new standard as well as how to operate the lease accounting system. Corporate functions like Procurement and Treasury will be involved in capturing new leases, so will need to learn how to identify leases and embedded leases. Real estate and equipment asset owners will be responsible for reporting any changes in leased asset data, so will need to be trained on what changes could have an accounting impact.

8. Audit Readiness

ASC 842 and IFRS 16 require right-of-use assets and lease liabilities to be reported on balance sheet, leading to increased auditor scrutiny. Companies will need to implement controls to satisfy auditor concerns about existence, completeness, and accuracy among others. Controls may include limiting who can enter into new lease agreements, managing contract and asset activity, and ensuring contract terms are adhered to.

9. Board and Executive Communications

Update the CEO, CFO, internal board, and audit committees on the status of the project as the deadline gets closer. Key issues to inform these groups of include impacts to financial metrics and KPIS, risks to completing the implementation on-time, and risks identified by auditors.

10. Presentation and Disclosures

Organizations need to identify the presentation and disclosure requirements of the new standards. These include qualitative and quantitative disclosures in addition to the right-of-use assets and lease liabilities on the balance sheet. There are also disclosures required prior to the effective date, like the SAB 74 disclosures and MD&A.

Download the complete 90 day checklist here: https://explore.leaseaccelerator.com/lease-account...

About LeaseAccelerator

LeaseAccelerator offers the market-leading 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 categories of leases including real estate, fleet, IT and other equipment at an asset-level. On average, LeaseAccelerator’s Lease Sourcing and Management applications generate savings of 17 percent on equipment leasing costs with smarter procurement and end-of-term management. Learn more at http://www.leaseaccelerator.com/.