FASB is the four-letter word you probably hear most often among your accountants these days. With the first iteration of the new FASB lease accounting standard going into effect Dec. 15, 2018, accounting and finance professionals are scrambling to prepare. But the wide-reaching impact of these changes goes far beyond the accounting department.
According to a recent PwC whitepaper, the new rules impact any department that deals with leases, including procurement and corporate real estate. The new standards also impact the systems and processes those departments use to manage lease data.
Here’s a look at how the FASB lease accounting standard impacts other areas of your business and how organizations are dealing with them.
The IT Department
Complying with the new standard will require your organization to maintain a substantial amount of data and have it readily available for reporting. At a large organization with a lot of equipment and assets spread across multiple locations, data often exists in many disparate sources.
The corporate real estate department may have contract information for all leased properties, for instance, while the procurement department maintains separate spreadsheets with details on equipment. (In fact, research from PwC found that more than two-thirds of companies are still using spreadsheets to manage leases.)
Under the new lease accounting standard, your organization will need to list all lease assets as liabilities, including rental property and equipment. You’ll also need to keep track of the type of lease and the terms, as you will be required to report on any lease with terms of more than 12 months.
This puts pressure on your IT department to find a solution that can store all this data in one place. Of all the challenges associated with the new lease accounting requirements, 75 percent of companies said implementing the right systems was their biggest obstacle.
For this reason, many organizations are making the move to an integrated workplace management system (IWMS) that can store all this data in one place.
Corporate Real Estate Leaders
Many companies lack a consistent process for monitoring leased property and equipment. This often falls on corporate real estate leaders, who will need to shift their approach from once-a-year reviews to ongoing oversight in real time.
They will need to rethink the way they handle lease terminations, bookings and negotiations and document these processes so they can become standard procedure.
Facility managers often have oversight of building and equipment maintenance and will need to be sure they can provide detailed information on these assets. If your facility managers are still using spreadsheets to keep track of these details, they’ll need to find a better solution. The accounting department is likely already researching lease accounting software solutions, and facility managers need to be part of this conversation.
CEOs will ultimately be responsible for ensuring all lease accounting information is accurate and up to date when signing off on quarterly financial statements.
They’ll expect to see reports that detail yearly lease obligations in a format that’s easy to understand.
The Flip Side of the FASB Lease Accounting Standard
By this time next year, most organizations will need to comply with these standards whether they’re ready or not. However, instead of viewing the new FASB lease accounting standard as a curse, they should see it as an opportunity to make much-needed improvements.
Having better visibility into lease accounting data across your organization enables your leaders to make better business decisions and identify ways to save. When you pair lease accounting software with an IWMS that includes space management and asset tracking, you’ll gain even more insight.
For instance, you can:
- Easily see which buildings are being underutilized and rent them out to supplement your income
- Determine when it makes more sense to buy leased equipment
- See when leases are nearing the end of their terms and make proactive decisions to terminate or renew them
- Compare rates of similar types of leased assets and negotiate better terms
If your organization needs to move your lease management data into a digital format, we can help. 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.
Contact us today to get started.