Did you heave a sigh of relief when the FASB compliance was pushed out to 2021? Your relief may have come a little too soon. Companies who have implemented or started the implementation process can tell you that it’s not an easy transition. This is especially true because the number, term, and type of lease will affect compliance. If your company is yet to get started on the implementation under the new standards, you may want to consider the following issues –
- Identifying the type of leases– Apart from real estate leases, the new accounting standard applies to equipment leases, vehicle leases, as well as embedded leases. It can be quite challenging to identify the type of leases and segregating them, especially if they are embedded in service agreements.
- Finding the missing leases– A majority of companies have found looking for missing lease documents to be one of the most challenging activities in the entire implementation process. Companies end up spending a tremendous amount of time and resources locating the leases and documents that will affect compliance.
- Lease abstraction– The new accounting standard requires abstraction of 50+ new data points. This means you will have to get your leases abstracted all over again.
- Department coordination– The implementation process is now extended beyond the real estate department. It requires inputs from management, accountants, auditors, and IT department. Companies need to support this cross-department coordination and collaboration.
- Technology– Many companies have relied on spreadsheets to manage their lease data. With the new accounting standards, this won’t be practical anymore because lease data needs to be stored in a single repository system so that calculations, reevaluations, accounting, etc. can be made. Companies need an efficient lease management system to better update, manage and track lease data.
- Resources– Depending on the size of the lease portfolio, dedicated resources will be required, beginning from the stage of gathering the leases to the quality assurance stage. Hiring and training will involve a heavy investment of time and money.
- Outsourcing– Since outsourcing considerably reduces the amount of time and money that is required to be spent on hiring and training, more companies are leaning towards outsourcing their compliance tasks. The increasing demand for service providers might make it difficult to find the right one when needed.
Implementation of the new accounting standards can be a daunting task. But with timely action and effective processes, the transition can be made seamless.