The Eight Teams You Need to Include for a Successful FASB ASC 842 Project
It’s been 30 days since FASB announced the new lease accounting standards. By now you have probably:
- Spoken to your financial auditors
- Familiarized yourself on the technical accounting issues
- Begun to model the pro forma impact on your financials statements
Now you need to start thinking about a game plan for complying with the new standards. First, you will need to identify who should be on your lease accounting project team. You will also need to decide who should lead the project and who should be the executive sponsor.
At most large organizations, real estate is managed by a centralized group at headquarters along with office managers at various facilities. Equipment leases are trickier as these assets are owned by many different stakeholders across the business. Rarely is there a centralized “equipment leasing” team. At best, there are a few lease administrators assigned to track miscellaneous leases for forklifts, furniture, laptops, data center and office equipment. So your best strategy is to get cross-functional representation from groups that are impacted by equipment leasing.
Your Lease Accounting Project Team
Here are eight functional groups to consider having representation from (and why you should consider them):
- Corporate Real Estate – An obvious candidate, if you have a large real estate portfolio. The definitive source for property lease terms, payments and future plans. Understands complex sub-lease or sale-leaseback arrangements that exist.
- Lease Administration – Whether they track equipment, real estate or both, the lease administrators are most conversant in current business processes and challenges. They know everything from how CAM charges are split out to how partial end-of-term buyouts for equipment are handled.
- Technical Accounting – Typically responsible for evaluating and interpreting new accounting standards. Also will play a critical role in lease accounting software selection, policy strategy, identification and assessment of controls.
- Financial Reporting – Ultimately, the most impacted by the new rules as they are accountable for meeting the SEC deadlines for implementing the new standards on the financial statements and note disclosure.
- Tax Planning and Reporting – Will need to evaluate the impacts of new standards to sales, property, and income taxes at local, state and national levels. Will provide requirements for what accounting data is needed and when to comply with tax rules.
- Information Technology – Will be responsible for defining requirements to upgrades to existing systems (ERP, Asset Management, Procurement, Real Estate) or purchases of new specialized lease accounting software.
- Procurement – Responsible for negotiating the pricing and business terms for all new equipment leases, buyouts and renewals. Will be critical to the process redesign and may take ownership of the project.
- Treasury – Typically owns the financial strategy and policies for leasing. Wants to ensure that the company is making optimal use of its cash and external financing sources with standardized lease versus buy analysis.
If you have a high concentration of leases in any one particular category of equipment, consider adding stakeholders from the user community to your lease accounting project team. The list will vary depending upon your industry and business model.
- Fleet Management – If you lease a lot of automobiles, you might want to include the fleet management group.
- IT Asset Management – If you lease a lot of laptops, tablets, networking or data center equipment then you might want to include additional representatives from corporate IT.
- Logistics – If you lease a lot of forklifts and material handling equipment you might want to include someone from the logistics or warehouse teams.
You should also consider an extended team that might also include the following:
- Human Resources – Concerned about the impact on compensation agreements that are based upon financial metrics such as EBITDA or Return on Assets that are impacted significantly by the new standards.
- Legal – Negotiates the legal terms and conditions for all equipment financing deals with banks, vendor captive lessors and independent leasing companies.
- Accounts Payable – Processes invoices and makes payments for equipment leases following specialized procedures. Important player to include for any business process redesign.
And most likely you will need a project manager for your lease accounting project team to coordinate activities amongst these various groups during the project cycle, which could last 6 to 18 months.
More Resources – New Lease Accounting Standards
White Papers, eBooks and Webinars
Learn the differences between contract-level and asset-level lease accounting in this technical white paper. Review examples of the impact of asset-level decisions, judgments and events for material handling, data center and IT equipment.
Considering Lease Accounting Software to comply with the new FASB or IFRS standards? Download this eBook to understand the potential time and cost savings opportunities resulting from automation of lease classification and financial reporting.
The industry’s most comprehensive guide to collecting your lease accounting data. Follow our 10-step methodology to understand what data you need; where to find it; how to abstract it and how to clean it up. Over 50 pages of best practices and diagrams illustrate the process step by step.