Companies need to move long-term lease agreements to their balance sheets this year.
We can help. After 10 years in the making, the Financial Accounting Standards Board (FASB) issued comprehensive changes regarding the financial reporting of real estate and equipment leases. The new lease accounting rules went into effect January 1, 2019 for public companies.
Public companies were initially the focus with a 2019 mandatory effective date. While the FASB provided private companies an additional year (to 2021) to implement Topic 842, those companies should still be making strides toward their eventual adoption.
Lease Accounting Solutions
Processes & Controls
We’ll review your existing processes—What data do you have? What controls do you have? What is missing? Based on our evaluation, we’ll recommend actions to ensure your processes are aligned with the new standards.
We’ll design a customized plan to implement the new standards and provide guidance on the required policies and procedures. We’ll help you begin to educate stakeholders who will be using the lease information.
Making the transition to the new lease accounting standards is the first step. We offer technology solutions, as well as ongoing, personal guidance to ensure you continue to stay in compliance.
A Cloud-Based Solution
Clark Schaefer Hackett’s LeaseCrunch software is a cloud-based solution designed to help companies implement the new lease accounting standards, saving you time and money by reducing the time it takes you to prepare for your audit. Best of all, it was built to accommodate the needs of companies with large, complex lease portfolios while still being cost-effective for companies with just a few leases.
Features of Clark Schaefer Hackett’s LeaseCrunch Software
Simplified policy elections
Identify required policy elections in minutes with templates for both FASB & IFRS. Software also provides pre-selections based on expedience and guidance that walks you through all selections.
Wizards to drive integrity
Online wizards assist users on key variables, including the 5 classification criteria and subjective decisions about early termination and renewal options.
Automated footnote disclosures
Automated quantitative disclosures simplify the complex footnote requirements required by the new lease standard.
Out-of-the-box reporting gets you going immediately, while custom reports can be created based on your specific needs.
Journal entry generation
The export engine provides customizable and error-free exports, so users can easily update ERP and other accounting systems.
Our software is scalable, so it can accommodate large, complex lease portfolios, while still being cost-effective for companies with as few as 1-5 leases.
What are the lease accounting changes?
In February 2016, the Financial Accounting Standards Board (FASB) issues Accounting Standards Update 2016-02: Leases. This new standard significantly changes the way leased real estate and equipment are reported by both public and private companies.
What will change?
The most significant change is that the new standard moves all lease agreements (other than short-term leases) onto the balance sheet.
Why were the new lease accounting standards created?
The new leasing standards were developed in order to provide a more honest/accurate picture of an organization’s financial situation, providing a more transparent view for company investors, shareholders, and other stakeholders.
When do the new rules go into effect?
The new rules went into effect January 1, 2019 for public companies. An extension to January 1, 2021 is currently pending approval for all other organizations.
What companies will be impacted?
All companies will be required to follow the new standards. The impact on those with real estate leases (versus equipment leases) will likely be more significant, as the value of real estate assets is typically much greater than equipment (though a company’s volume of equipment leases may be greater).
What is the impact to company financial statements?
It is estimated that the total impact of this change will result in an additional $2+ trillion of operating lease commitments to be reflected as a liability on corporate balance sheets.
Why does this matter?
This balance sheet impact could significantly increase liabilities and impact bank debt covenants. Additionally, many financial institutions do not have a consistent approach about how they will assess the impact of these “new” liabilities. Therefore, it’s critical that companies begin identifying their entire lease portfolio and gathering lease documents so they have an early understanding of the likely impact on their balance sheet and bank covenants. This will help them arm themselves with the information they need to have conversations with their lenders and develop a game plan to address the potential loan covenant impact.
What do companies need to do to prepare?
Becoming compliant with the new standards could be a lot of work. All leases will need to be inventoried and all leasing details will have to be gathered to test them against the new standards. Given that regular reporting will be a requirement, companies will also need to find a working method to continue this process going forward.
How can CSH help?
CSH can offer clients a cloud-based lease accounting software solution that helps companies implement the new lease accounting standards. This software provides a scalable solution that can accommodate the needs of companies with large, complex lease portfolios, while still being cost effective for companies with as few as 1-5 leases.
Can’t I just track lease information in a spreadsheet?
It’s a common misconception that companies with one or two leases can rely on spreadsheets to comply with the new lease standards. The complexity of the new standards will present significant demands, regardless of company size or lease volume. Plus, our software solution provides benefits and accuracy far beyond what mere spreadsheets can provide.
What are the specific benefits of your lease accounting software solution?
- Simplified policy elections – Ability to identify required policy elections in minutes with templates for both FASB & IFRS, provide pre-selections based on expedience and include guidance that walks clients through all selections
- Wizards to drive integrity – Online wizards assist users on key variables, including the 5 classification criteria and subjective decisions about early termination and renewal options.
- Automated footnote disclosures – Automated quantitative disclosures simplify the complex footnote requirements required by the new lease standard.
- Comprehensive reporting – Out-of-the-box reporting gets companies going immediately, while custom reports can be created based on their specific needs.
- Generate journal entries – The export engine provides customizable and error-free exports, so users can easily update ERP and other accounting systems.
Who do I contact for more information?
Contact one of CSH’s lease accounting experts at [email protected] for more information.
Lease Accounting Guidance
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