As you are evaluating, selecting, and implementing lease accounting software, you will need to consider how the new application will interact with the other financial and operational systems in your IT ecosystem. Some interactions are obvious while others are not. Perhaps the most important system to consider is the general ledger. You will want the debits and credits created from your leasing subledger to be uploaded into your GL on a monthly basis.
Most large companies have a portfolio of hundreds, if not thousands, of existing leases that will need to be transitioned to the new standard. The requirements for transitioning this existing portfolio of leases will vary based upon the start and end dates relative to the date of initial application and the effective dates for ASC 842. With respect to those two dates, there are six variations of leases that may occur, each of which will have slightly different requirements.
Many companies will want to synchronize their accounts payable (AP) applications and their lease accounting system. To perform accurate accounting for your leasing portfolio, you will need to capture precise details of periodic rent payments as well as other fees incurred at the start and end of the lease.
In a few days (July 29th) we will have reached the midway point between the date FASB published the ASC 842 standard (February 25, 2016) and the first implementation date (December 31, 2018). Most companies adopting the new standard have not reached the midway point in their own implementations. However, there are a number of early movers who have made significant progress in the transition which begs the question – what are the lessons learned so far?
Many companies have an integrated workplace management system or a real estate administration application that serves as the system of record for all property leases. Much of the leasing data needed to perform real estate administration is also needed to perform proper lease accounting. Rather than manually entering data into both systems, the best approach is to establish integration between the real estate administration application and your lease accounting system.
It’s National Scavenger Hunt day! Many accounting organizations are in the midst of a scavenger hunt of their own. Not just today, but all year-long, accounting teams will be searching through file shares, document repositories, and enterprise applications for copies of their leasing contracts. Below is a list of 15 recommendations on where to find your lease agreements.
Many companies will want to synchronize their fixed asset management and lease accounting systems. Ideally, the fixed asset systems should be tracking all plant, property, and equipment, including leased right-of-use assets. Maintaining an accurate inventory of leased real estate and equipment in the fixed asset system is critical for calculating the depreciation used in financial reporting and property tax calculations.
Are you looking for ways to accelerate your lease accounting project? Read our ten strategies for speeding up the implementation cycle and lowering your risks. Learn short-cuts you can take throughout the lifecycle of the project whether you are just getting started or are already shopping for software.
With the implementation deadlines for the new lease accounting standards approaching in the coming years, many controllers and accounting organizations are considering lease accounting software. At some companies, the business justification for investing in a specialized software application is straightforward. Developing the systems, processes, and controls to support major accounting changes is viewed simply as a “cost of doing business.” But at a number of other companies we have spoken to, there may be a need to provide a more detailed business case to support the investment.
With the deadline for the new lease accounting standards getting closer, more and more companies are beginning the process of collecting data needed for the transition. At first glance, the process to collect lease accounting data seems straightforward. Read each of the lease contracts and extract key terms such as base and variable rent, payment frequency, timing, and end-of-term options. However, before you jump head-first into reading contracts, we would recommend taking a few minutes to understand the common pitfalls and mistakes that other companies have made collecting lease accounting data.