The Eight Teams You Need to Include for a Successful FASB ASC 842 Project
One of the first things you will need to consider when starting on ASC 842 or IFRS 16 is who should be on your lease accounting project team. Your best strategy is to get cross-functional representation from groups that are impacted by equipment leasing.
1) 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 sublease or sale-leaseback arrangements that exist.
2) 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.
3) Technical Accounting
Typically responsible for evaluating and interpreting new accounting standards. Will also play a critical role in lease accounting software selection, policy strategy, identification, and assessment of controls.
4) Financial Reporting
Ultimately, they are 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.
5) Tax Planning
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 how to comply with tax rules.
6) Corporate IT
Will be responsible for defining requirements of upgrades to existing systems (ERP, asset management, procurement, real estate) or purchases of new specialized lease accounting software.
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.
8) Corporate 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 which 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.
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.