Don't Let FASB Lease Accounting Determine Your Destiny
We still have Kodak moments, but when was the last time you used a Kodak camera?
Although it was a Kodak engineer who developed the first digital camera way back in 1975, the company didn’t invest heavily in digital technology until two decades later. When the CEO finally did invest in digital, it was out of fear—and he spent too much too soon, before he knew how the market would develop.
As Kodak learned the hard way, making decisions based on fear can have costly consequences. Unfortunately, fear of the new FASB lease accounting standards seems to be driving many companies to hurry up and invest in software solutions that impact much more than their accounting departments.
The Race To Comply With IASB and FASB Standards
The new lease accounting standards issued by the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) will require companies to account for all types of leases on their balance sheets for the first time, including real estate and equipment leases, so the panic is understandable. For large organizations with a lot of assets, such as an airline or a retailer, that could mean providing detailed information about tens of thousands of leases. Companies that use the International Financial Reporting Standards (IFRS) or the Generally Accepted Accounting Principles (GAAP), have an estimated $3.3 trillion of lease commitments, and 85 percent of them aren’t on their balance sheets, according to Accounting Today.
All public companies will have to comply with the new FASB accounting standard in the years beginning after Dec. 15, 2018, and reporting for private companies will begin one year later. IFRS 16 takes effect Jan. 1, 2019.
Accounting and finance departments are scrambling to prepare for this massive change; in a recent PwC lease accounting survey, 52 percent of organizations said they were still assessing the impact of the new standards, and 43 percent said they plan to implement a new lease management system. Early adoption is permitted but not likely for most companies, according to the survey—which shows the far-reaching impact of these requirements.
How Lease Accounting Is Impacting Workplace Management
As the looming deadline causes organizations to rethink their approach to lease accounting, many are also recognizing the value of an integrated workplace management system (IWMS) that allows them to manage space, maintenance requests and assets along with lease details.
Accounting and finance professionals are investing in expensive lease accounting software that has some workplace management modules rolled in without considering how it will impact their workplace. They aren’t involved in space planning, so they don’t need access to real-time data on rentable square footage or occupancy rates. They may not realize a makeshift workplace management solution makes it more difficult for workplace leaders to have the data they need to plan for the future, adjust floor plans and seating arrangements or keep track of equipment maintenance records. They also may not realize there are other options for lease accounting available at a fraction of the cost. Some of the largest lease accounting software systems charge as much as $100 per lease, which quickly adds up to millions of dollars each year for an organization with thousands of leases.
Some organizations may already have lease accounting built into legacy ERP systems and don’t even realize it until they’re locked into a three-year contract at $5 million a year.
How to Avoid Buyer’s Remorse From Your Lease Accounting Software
It may feel like the pressure is on to find a lease accounting software quickly, but taking some time to do your research now can help you avoid making an investment you’ll regret later.
Here are a few quick tips:
- Involve others in the decision. Talk with your HR, IT and FM departments first to see if any of your current software systems support lease accounting.
- Buy only what you need. Be wary of an IWMS that claims to do everything for a single (usually high) price when you only need a few modules. Instead, look for one that allows you to pay a monthly fee for each module.
- Watch out for high per-lease fees. A provider with an established track record of managing lease accounting for enterprises shouldn’t have to charge a premium for each lease.
- Don’t let your lease accounting needs dictate your workplace management software. Technology has come a long way in just a few years. Thanks to data integrations, there’s no reason why your organization can’t have two separate systems that work together as one.
The bottom line: the software your organization chooses may have implications that reach far beyond lease accounting. While FASB and IASB compliance are important considerations, they shouldn’t be the only factor you consider when choosing an IWMS.
iOFFICE has a partnership with lease accounting management software provider Visual Lease, which allows organizations to run lease reports and view data right from our IWMS. Using our asset tracking software, managers can also store important details about each building or piece of equipment, including location, owner and contract details. Workplace leaders can use this information along with data on space management, maintenance and more to plan for the future.
They can easily add leases and modules as their organization grows and build customized reports based on their needs, rather than being locked into a solution that’s too expensive or too small.
You know your organization has tremendous potential to grow. Don’t limit yourself by rushing into a decision based on fear.