Each year hundreds, if not thousands, of assets will come off lease. Some leases will be renewed. Equipment assets may be returned or purchased. Real estate leases could be expanded, contracted or terminated. Some of these changes such as moving out of your corporate headquarters building will have high levels of visibility. But others such as swapping out photocopiers in the Singapore office will not. Have you considered what process you will use for tracking lease renewals and other end of term events?
To ensure your lease accounting remains compliant you will not only need to track new leases, but also changes to existing leases throughout their contract terms. Real estate leases might have variable rents that change periodically. Floor space might expanded or contracted. Space could be subleased to other tenants. Leased equipment assets might be moved between locations, upgraded with additional components, or even lost, damaged, or stolen. What processes will you establish for tracking lease changes.
Your leasing portfolio is constantly changing. Each year your business units will sign hundreds, if not thousands, of leases for buildings, computers, forklifts, rail cars, shipping containers, office furniture, photocopiers and other types of assets. What process will you use for tracking new leases to ensure that your accounting is kept current with the most accurate, complete and up-to-date information about leases?
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.
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.